In an already rapidly evolving and vibrant sector, the pandemic has accelerated further changes for the payments sector, with consumers placing increased reliance on the internet and digital communication to pay for goods and services.

Against this backdrop and with the UK now hopefully emerging from lockdown, we cast an eye to the horizon and touch on three developments for the payments sector during H2 2021.

Implementation of strong customer authentication (SCA) to e-commerce transactions

What’s happening?

From the 14 September 2021, all participants (issuers, schemes, acquirers and retailers) involved in the online payments ecosystem, will be expected to apply SCA to e-commerce transactions. Any non-compliance after the 14 September 2021 could be subject to the FCA’s full supervisory and enforcement action.

What next?

  • E-commerce retailers should be in active dialogue with their payment processors to ensure they are utilising solutions that support SCA (such as 3DS 2.1 or 2.2 (and relevant Mastercard extensions)).
  • Acquirers and gateway providers need to ensure that transactions submitted to issuers are correctly flagged in order to better enable the usage of exemptions from the application of SCA.  Acquirers, in particular, will no doubt continue refining their ancillary products to capitalise on the exemption possibilities for their merchant customers.
  • All industry participants need to ensure cardholders are aware of the implementation of SCA and that the methods used to authenticate transactions will change.

PSR’s Card Acquiring Market Review

What’s happening?

The PSR will publish its final report on the supply of card acquiring services during 2021. This follows the publication of its interim report in which the PSR stated that the supply of card acquiring services was not working well for small and medium sized merchants. For these types of merchants, the PSR identified three areas of concern: on merchant contracts for card acquiring services, on point-of-sale (POS) terminal contracts, and on the difficulty for merchants to compare prices. In order to address these concerns, the PSR identified a number of potential remedies to be aimed at making it easier for small and medium sized merchants to switch to a new provider or better deal, such as:

  • a requirement for all contracts for card-acquiring services to have an end date, prompting merchants to shop around;
  •  changes to POS terminal contracts to limit their length, ending contracts that auto-renew for successive fixed terms and making it easier for merchants to exit POS terminal contracts without incurring exit fees;
  • the introduction of measures to make it easier for merchants to research and compare prices and options available to them.

What next?

The PSR is currently considering responses from across the industry to the interim report and the proposed remedies to address the concerns identified for small and medium sized merchants. The final report and remedies to address the identified concerns is due in 2021 and industry participants should keenly review the final report once published.

New Payments Architecture Programme

What’s happening?

The PSR is currently consulting on the New Payments Architecture (NPA) Programme, which is the programme to renew the clearing and settlement structure for interbank retail payments. The NPA programme, which is being carried out by Pay.UK (overseen by the PSR), seeks to enable increased participation, encourage greater innovation and competition and improve resilience. As the NPA Programme has been subject to several delays and challenges, the PSR has launched a consultation to tackle the issues impacting the delivery of the programme.

What next?

The PSR is due to report in Q4 2021 on the output of the consultation and set out its proposed remedies to address the delays and challenges impacting the NPA Programme. These remedies are likely to be focussed on measures to ensure that:

  • Pay.UK procures effectively;
  • there is competition and innovation within the NPA Programme to avoid one infrastructure provider to the NPA gaining a dominant position within the ecosystem;
  • Pay.UK has a role in setting the price levels for users of the NPA so that pricing is proportionate, objective and non-discriminatory.

Should you wish to discuss any aspect of this article, please contact our Payments team who would be delighted to assist.

Contributor: Matt Atkinson (Associate)

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

Date published

28 May 2021

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