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The changing landscape of UK payments

Global Payments
Financial operations
Financial services
By
Karolina Jarosinska
|
June 28, 2024

It is no secret that the UK financial landscape is one of the most innovative and rapidly changing in the world. Ten years ago, cash was the most common payment type, with twice as many transactions as debit cards. In recent years, cash payments have declined, and most spontaneous payments are now made with debit cards (including digital wallets).

The UK payment ecosystem and the financial sector have experienced a number of key changes recently, as well as new ones on the horizon, that you need to keep in mind. If you understand these changes, you'll be able to turn any upcoming challenges into opportunities and ensure they don't take you by surprise.

Current payment schemes, Brexit, and ISO 20022 messaging standard are the most important factors influencing the UK payment landscape today. The purpose of this article is to help you navigate the UK payments landscape by breaking down all the forces influencing them.

The Basics of the UK Payment System

There are still a few UK financial institutions that use SEPA, even post-Brexit, given the continued economic ties with Europe. However, there are additional governing bodies and systems responsible for payment oversight, such as:

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The Payment Systems Regulator (PSR): The regulatory body for payment systems in the UK.
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Pay.UK: Oversees national retail payment systems such as BACS, Faster Payments, and the Image Clearing System.

Additionally, the Bank of England regulates CHAPS, a payment scheme mostly used for same-day large transactions made in British pounds, primarily by financial institutions.

The Effect of Recent Changes on the UK Payment Landscape

While domestic payments were not affected by Brexit, and UK SEPA payments were also largely unaffected, more banks are treating SEPA transactions between the UK and Europe as cross-border payments, incurring higher fees. As a result, businesses that wish to trade outside or with the UK face certain challenges.

In addition, some companies do not accept UK IBANs, despite confirmation from the European Payments Council (EPC) that the UK continues to participate in SEPA payment schemes. Also, more details are required than just the account holder's name and bank account to process payments between the UK and Europe—such as the full address of the account holder. Similar requirements apply to Switzerland, Iceland, Liechtenstein, and Norway as part of the EU's single market.

These factors significantly complicate the flow of funds between the UK and Europe and deter businesses from trading internationally.

The Outlook on the Future of UK Payments

The UK has introduced a number of initiatives that aim to improve the speed, efficiency, and safety of payments:

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Open Banking: Under Open Banking, UK banks are required to give their customers' data and payment services to third-party providers (with consent) through secure APIs, which was introduced by the Competition and Markets Authority in 2018. A strong authentication requirement is part of Open Banking, which enhances payment security as per PSD2. By leveraging APIs, third-party providers can access account information, allowing treasury to be unified and financial operations streamlined. Open Banking does not give users access to payment rails, but is a way to initiate payments (pay by bank), eliminating fragmented banking landscapes and manual work, giving users more options to manage their finances.
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New Payments Architecture (NPA): Pay.UK plans to deliver a future-oriented single payment platform by pushing the New Payments Architecture and improving the current payment schemes under their regulation.
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The G20's Financial Stability Board (FSB) Roadmap: This initiative improves cross-border payments through the introduction of ISO 20022 standardized formats for outgoing messages and enriched data to make international payments more transparent, accessible, cost-effective, and faster. The roadmap aims to lay the foundation for regulators and innovators to move forward and develop the necessary innovations in paytech.

As ISO 20022 has already been adopted by 70 countries, it harmonizes cross-border messaging, making international transactions easier and more efficient. By using this new messaging, businesses will be able to reconcile transactions more quickly, make better decisions, and detect and prevent fraud. On a larger scale, it means less manual involvement from banks, reducing delays and outages.

In June 2023, both CHAPS and RTGS moved to ISO 20022. The NPA is also planned to move to ISO 20022. Both will work on ISO 20022 standards, and the NPA will offer new payment types, including 'instant' transactions for point-of-sale, as well as enhanced overlay services such as confirmation of payee and request to pay.

Actionable tips for cross-border transactions with the UK

In order to avoid delays and high fees when sending or receiving money from the UK consider choosing a financial partner that is able to provide you with not only a GBP bank account but also access to local payment rails beyond SEPA - that is, Faster payments, CHAPs and other payment schemes that are currently prominent in the UK.

Thanks to our robust network of global financial institutions, Fyorin can give you access to over 220+ currencies across 200 countries and local payment schemes with one onboarding and one platform. This means greater flexibility to transact globally like a local, less delays and fees no matter where you send the funds to or receive them from.

Interested in learning more? Book a demo or drop us an email at [email protected]

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Karolina Jarosinska
Product Marketing Manager
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Karolina is the product marketing manager at Fyorin. She deep dives into topics like fintech, payments, unified treasury to extract the recent trends and insights and bring them to Fyorin's audience.

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