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The evolution of UK payments in 2020

March 2020 Modulr
3 mins read

Payments Industry

The UK payment ecosystem is heading towards a revolution. Change is fast approaching as  developing technologies and legislation mutually mature and create major opportunities for forward thinking organisations to take full advantage of payment innovation. The next decade is set to see the four pillars of the UK payment industry (Bacs, Faster Payments, CHAPS & SWIFT Payments) evolve. This highlights just how fundamental the impacts of future payment changes are likely to be. 

The role of regulatory change in the future of UK payments 

Regulation in the payments industry is always evolving in order to keep up with developments in the wider commercial landscape. With an aim to improve trust in payment infrastructure, increase competition and stimulate new innovations, regulation is driving progress. 

In 2020, the co-maturing of three regulatory areas will have a significant impact on the growth and evolution of the UK payments sector; Open Banking, the Payment Services Directive (PSD2) and the upcoming New Payments Architecture (NPA).

Open Banking 

The arrival of Open Banking in 2018 fundamentally changed the operational landscape across multiple financial sectors. Compelling the UK’s largest banks to share transaction data with third parties, while also allowing them to initiate payments on behalf of their clients, Open Banking has unlocked a whole new world of opportunity. 

With the new rules in place, two new service provider sectors have arisen; Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs).

Account Information Service Providers 

These are organisations that are given authorisation to access the financial data of an individual or business. With this access, these companies offer value-added services, including money management tools and personal finance apps, while also using the data to more effectively evaluate credit decisions. 

Payment Initiation Service Providers

These companies have authorisation to view account data and make payments on behalf of users. Typically, companies with this level of access offer more complex offerings that can improve the convenience and speed of payment solutions.  

Payment Services Directive (PSD2)

The PSD2 is legislation largely designed to standardise payment regulations across Europe with the view of creating a single digital market. Much of PSD2 overlaps with the UK’s Open Banking regulations and was conceived with similar objectives. 

In addition to enhanced data access for companies and individuals, PSD2 also demands improvements in identity authentication to reduce digital fraud and enhance transparency in digital banking. 

New Payments Architecture (NPA)

Designed with the objective of opening up the payments sector and driving competition, the NPA is an innovative infrastructural ambition. Managed by Pay.UK, the system is being built with the ultimate objective of replacing Bacs, Faster Payments and other commonly used payments, significantly diversifying the market. 

The future of UK payments 

The UK payment industry is set to rapidly grow and evolve over the next decade. 2020 will continue to see the impact of transitional changes, laying the foundation for a more open and competitive payment sector. This should deliver benefits for customers, payment organisations and retailers alike. Forward thinking organisations will need to be prepared for these innovations in order to take full advantage.

To further explore the future of UK payments, download our free guide today.