The UK Payments Landscape: Regulation as a Catalyst

The UK Payments Landscape: Regulation as a Catalyst 

The UK payments sector is a global leader, balancing innovation with stringent oversight. The government’s National Payments Vision (NPV), launched in November 2024, aims to foster a “trusted, world-leading payments ecosystem” through competition, security, and innovation. Open banking, with 11 million active monthly users and 14 million payments per month, is central to this vision. The Financial Conduct Authority (FCA), now the lead regulator for open banking, is advancing initiatives like VRP to enhance consumer choice and reduce reliance on card-based payments. The FCA’s five-year strategy, introduced in March 2025, prioritises innovation, efficiency, and consumer trust, with measures like streamlined regulatory reporting, AI-driven fraud prevention, and strengthened customer fund safeguards. 

However, challenges persist. Consumer trust in open banking is low, with very low consumer awareness and concerns about security. Technical hurdles, including high transaction decline rates and cumbersome Strong Customer Authentication (SCA) processes, hinder adoption. The summit proposed a universal trust mark to boost confidence, a strategy successful in Brazil and India, where standardised acceptance marks have driven uptake. The planned consolidation of the Payment Systems Regulator (PSR) into the FCA, requiring legislation and spanning years, aims to streamline oversight but raises concerns about diluting specialised focus. Rising card scheme fees, up 25% since 2017 and costing merchants £170 million annually, underscore the need for regulatory intervention, with decisions expected by Autumn 2025. 

 

Variable Recurring Payments: Redefining Consumer Control 

VRP was discussed as a potentially transformative opportunity, with phase one launching by late 2025 for low-risk use cases like utilities and government payments. Unlike direct debits or card-on-file transactions, VRP offers consumers one-time authentication and flexible payment parameters, streamlining recurring transactions. Summit panellists emphasised the need for a sustainable commercial model, robust consumer protections, and efficient dispute resolution. Phase two, targeting e-commerce, is slated for 2026–2027, urging merchants to prepare for broader adoption. 

VRP’s success hinges on overcoming trust and usability barriers akin to open banking’s challenges. The summit advocated an industry-led governance entity to ensure equitable pricing and participation, avoiding Europe’s SEPA Instant Credit Transfer pitfalls, where high costs limited merchant uptake. VRP’s potential to integrate loyalty programs with a single tap, as highlighted in seamless payments discussions, positions it as a consumer-centric innovation. However, the lack of commercial case studies in the UK limits immediate applicability, requiring merchants to monitor developments closely. 

 

Fraud Prevention: Collaboration and Proactive Measures 

Fraud, particularly Authorised Push Payment (APP) fraud, remains a pressing concern, with £460 million in UK losses in 2023, down from £500 million in 2022. The Confirmation of Payee (CoP) system, implemented since July 2020, has reduced fraud by verifying payee details pre-transaction. However, reactive measures like reimbursement are insufficient. The summit called for proactive strategies, including predictive analytics, behavioural analytics, and device fingerprinting, supported by real-time transaction monitoring and biometric authentication. The FCA’s partnerships, such as the UK Fraud National Database, enhance detection, while AI-driven tools are becoming industry standards. 

Collaboration across banks, payment service providers (PSPs), social media platforms, and telecoms is critical, as 75% of scams originate online. A shared liability model, introduced for APP fraud, has shown early success in reducing volumes. Summit discussions emphasised tech giants’ responsibility to curb fake ads and scams on digital platforms, aligning with global trends. In Australia, the Scam Safe Accord (2023) unites banks, telcos, and digital platforms, while Singapore’s Anti-Scam Centre leverages data-sharing to combat fraud, offering models to strengthen CoP. 

Reflection: Collaboration is promising but requires regulatory enforcement and cross-sector commitment. Australia’s AUD 2.7 billion in annual scam losses (ACCC, 2024) highlights the need for consumer education and real-time detection, areas where the UK excels. However, smaller FinTechs may struggle to adopt AI-driven fraud tools, risking a divide between large and small players. The FCA’s shift to less intensive supervision for compliant firms raises enforcement consistency concerns, necessitating clear guidelines. 

 

Frictionless Payments: Strategic Friction and Consumer Psychology 

Frictionless payments balance speed, security, and consumer experience. Contactless payments dominate high-volume settings like supermarkets and transit, setting expectations for seamless transactions. However, strategic friction, such as SCA for high-value transactions, is often welcomed, enhancing security without significant disruption. The summit highlighted consumer psychology, noting that loyalty schemes providing instant feedback (e.g., displaying savings at checkout) create a “dopamine hit,” boosting satisfaction. This challenges the notion that fewer clicks always improve experiences. 

Accessibility for vulnerable consumers was also discussed. One retailer opted for a payment helpline over Apple Pay to support inclusivity, reflecting a moral obligation to maintain options like cash. The UK’s decision not to mandate cash access but advocate payment choice aligns with the with approach in Australia. 

Reflection: Psychological nudges are a growing global trend. Australia’s near ubiquitous contactless payment adoption reflects demand for speed and convenience. However, Japan’s persistently high level of cash-based transactions underscore cultural preferences for inclusivity, resonating with the UK’s cash commitment. Digital cash alternatives, like central bank digital currencies (CBDCs) piloted in Australia and Singapore, could bridge this gap but were underexplored at the summit. Merchants can leverage behavioural economics, as seen in Southeast Asia’s super apps, to enhance engagement. 

 

Seamless Payments: Consumer-Centric Innovation 

Seamless payments were exemplified in retail, telecom, and art market case studies. A shoe retailer integrated Buy Now, Pay Later (BNPL) options like Clearpay and PayPal, while a telco used direct debit and credit checks for flexible plans. In the art market, high-value online transactions via Stripe and express checkouts (Apple Pay, Google Pay) face chargeback challenges due to complex shipping and authentication. VRP’s potential to streamline loyalty and payments in one tap enhances seamlessness, particularly for e-commerce and subscriptions. Device optimisation and bypassing account creation further reduce friction. 

Reflection: Seamless payments align with embedded finance trends. Australia’s BNPL market, capturing a significant portion of e-commerce spend, mirrors the UK’s adoption, but regulatory challenges (e.g., UK’s 2024 BNPL consultation) require attention to prevent over-indebtedness. Asia-Pacific super apps like Grab and WeChat, integrating payments and loyalty, offer a blueprint for VRP integration. High-value transaction challenges, like art market chargebacks, highlight the need for tailored fraud prevention, relevant to Australia’s luxury goods market, where e-commerce fraud has been on the rise. 

 

Global Lessons: Australia and Asia-Pacific 

The UK’s journey offers lessons for Australia and the Asia-Pacific. Australia’s New Payments Platform (NPP) and PayTo service mirror the UK’s Faster Payments and VRP but face slow adoption due to merchant awareness and costs. The UK’s trust mark proposal could boost uptake. Singapore’s PayNow and India’s Unified Payments Interface (UPI), with 500 million users and 150 billion annual transactions, demonstrate interoperable, low-cost systems. The UK could emulate UPI’s standardised QR codes for VRP branding. However, Australia’s fragmented banking and card reliance, like the UK’s, require independent pricing models to foster innovation, as proposed for VRP. 

Reflection: The UK’s consumer-centric focus informs Australia’s PayTo strategy, while Singapore’s regulatory coordination could accelerate VRP adoption. India’s UPI success underscores simplicity and affordability, qualities VRP must emulate to compete with card networks. Cross-border harmonisation remains a challenge in the Asia-Pacific’s diverse regulatory landscape, unlike the UK’s unified FCA approach. 

Actionable Takeaways 

• Enhance Consumer Trust: Implement a universal trust mark for open banking and VRP, paired with consumer education to address awareness and security concerns.  

• Advance VRP Adoption: Monitor phase one (2025) and prepare for e-commerce expansion (2026–2027), advocating equitable pricing via an independent governance entity.  

• Strengthen Fraud Prevention: Invest in predictive analytics and collaborate across sectors (banks, tech, telcos) to enhance CoP and reduce APP fraud, learning from Singapore’s Anti-Scam Centre.  

• Balance Friction and Inclusion: Use strategic friction (e.g., SCA) for security and psychological nudges (e.g., loyalty feedback) for engagement, while maintaining cash and helplines for vulnerable consumers.  

• Leverage Embedded Finance: Integrate VRP and BNPL into retail ecosystems, drawing on Asia-Pacific super apps, and optimise mobile checkouts.  

• Ensure Regulatory Compliance: Align with FCA’s Consumer Duty and prepare for PSR-FCA consolidation, addressing card fee increases (£170M annually) by Autumn 2025. 

 

Conclusion 

Highlights included the UK’s vision for a trusted, consumer-centric payments ecosystem, driven by open banking, VRP, and collaborative fraud prevention. Regulatory advancements under the FCA and consumer-focused innovations like seamless payments and psychological nudges position the UK as a FinTech leader. Challenges—consumer trust, VRP’s commercial viability, and regulatory consolidation—require industry collaboration and global learning. Australia and the Asia-Pacific offer valuable lessons, from PayTo’s adoption hurdles to UPI’s scalability. By prioritising trust, interoperability, and inclusion, payments professionals can build a resilient, seamless, and inclusive financial future.