The Payment Systems Regulator (PSR) has published the outcome of its review of consumer protections in interbank payments.  

For now, it is not going to intervene to introduce additional purchaser protection. The policy statement can be found here.

This follows a consultation with consumer representatives and payment industry stakeholders launched in February 2021. The consultation asked for views as to whether more comprehensive consumer protection measures were needed for retail purchases made with Faster Payments, which types of payments might need protection, and the ways in which consumers may claim protection.

The consultation was called in response to the ever-increasing popularity of the Faster Payments Service since its introduction in 2008, and particularly its importance in the development of many Open Banking initiatives. However, Faster Payments and other interbank payments do not benefit from the same level of consumer protection as card payments, such as chargebacks and protection under section 75 of the Consumer Credit Act 1974. The PSR noted in its call for views (available here) that security was the most important factor for consumers when making a payment in all types of purchases bar those below £10. There are, however, limited protections already in place when making interbank payments, in the form of the Contingent Reimbursement Model Code and Confirmation of Payee, both aiming to prevent and/or provide redress for fraudulent payments, as well as under the Payments Service Regulations 2017 for unauthorised and/or wrongly executed payments.

Consumer representatives generally made the case for regulatory intervention, amid concerns that the full potential of Open Banking may not be realised should consumers remain concerned about the safety of interbank payments. They also made the point that most consumers are often not aware of the level of protection offered by different payment methods.

Industry respondents noted that the level of harm for most interbank payments was relatively low, whilst they acknowledged that actually measuring such risk was a difficult task, and expressed their preference for a market-driven approach to consumer protection. They felt that the costs of adding liability provisions into the Faster Payments rules would not be proportionate. The PSR noted that some respondents felt that increased competition between Faster Payments and card payments would produce positive outcomes for consumers and businesses.

Ultimately, the PSR took the view that no intervention was needed at this stage. Its current preference is to continue working with industry stakeholders to foster collaboration among the various actors in the sector to ensure consumers are effectively protected. This is particularly important when making high value payments, payments for delayed delivery goods or services or payments with an increased counterparty risk, all of which represent a significant risk of harm to consumers. This, however, came with a warning to the industry, as the PSR intends to continue monitoring the market as Faster Payments grow.  The PSR will be prepared to intervene should this market-driven approach fail to provide satisfactory protection to consumers in line with the level of risk and potential harm involved.  

Under the approach chosen by the PSR, all Faster Payments participants will be expected to identify and share payment risk levels with other participants and to act responsibly and accordingly to minimise consumer harm. Whilst consumer education will be a crucial point in ensuring the effectiveness of any industry-led response, the PSR is firmly of the view that this cannot be the only measure, and the onus should not be placed solely on consumers to know whether, and how, they are protected when making a payment.

As interbank payments find new uses outside traditional person-to-person payments through Open Banking initiatives, it will be interesting to see how well industry stakeholders collaborate to address any perceived consumer harm and whether the PSR’s market-driven approach is successful in ensuring interbank payments become an attractive option for consumers in the retail space. 

Contributor: Julie Nauwelaers

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions

Date published

15 October 2021

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