The Financial Conduct Authority (FCA) has outlined its plans to implement variable recurring payments (VRP) and advance Open Finance by 2025, aiming to increase competition and expand consumer choice in the UK. These developments are part of a broader strategy to support economic growth, as detailed in a letter from FCA chief executive Nikhil Rathi to Prime Minister Keir Starmer and Chancellor Rachel Reeves.
The letter was a response to the government’s call for regulators to adopt pro-growth measures, issued by the Prime Minister on December 24, 2024. Rathi emphasized the need for a collaborative approach, stating:
“We want to work with you in a fundamentally different way to support the growth mission. To achieve the necessary reforms, your acceptance of greater risk-taking and resource prioritization is crucial.”
He further described growth as a cornerstone of the FCA’s strategy through 2030, noting that the UK must develop a financial services digital infrastructure plan to align with its ambitious AI initiatives.
Digital-First Approach and Payments Innovation
The FCA intends to adopt a digital-first strategy, spearheaded by a new Executive Director for Payments and Digital Finance. This role will also oversee the Payment Systems Regulator (PSR), ensuring alignment with the National Payments Vision for 2025.
The FCA plans to work with the PSR to introduce VRPs, a new Open Banking payment method designed to:
- Enhance competition and choice.
- Replace traditional direct debits and card-on-file payments.
- Reduce costs for merchants and consumers.
- Address issues like payment delays and fraud.
Additionally, the FCA aims to leverage powers from the anticipated Data (Use and Access) Bill to prioritize Open Finance, with a potential focus on improving SME lending options.
Rathi also urged the government to take further action, particularly in digital identity authentication and verification, which he believes could unlock significant economic benefits.
Industry Reactions
Key industry leaders have expressed strong support for the FCA’s plans:
- Francesco Simoneschi, CEO of TrueLayer, highlighted the transformative potential of VRPs in reducing payment delays, fraud, and consumer fees:“This flexible instant payment method will significantly reduce costs for merchants and consumers, replacing outdated systems like direct debits.”
- Huw Davies, co-founder and CEO of Ozone API, praised the FCA’s commitment to driving VRPs and delivering Open Finance:“These initiatives are essential stimulants for UK economic growth. The renewed purpose we see today has been missing since the early days of Open Banking implementation.”
Strengthened Collaboration Between FCA and PSR
The Payment Systems Regulator (PSR) recently published a mid-term review of its five-year strategy, committing to collaborate with the FCA on shaping the framework for commercial Open Banking payments.
The FCA’s ambitious plans signal a bold step forward in the UK’s financial services sector, paving the way for a more competitive and innovative ecosystem by 2025.
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