COVID-19: the impact on the UK's payments industry

The UK financial services regulators are closely monitoring the COVID-19 situation to seek to protect the UK's payment services and systems sector and manage the challenges the coronavirus pandemic could pose to business and customers. In particular, the Payment Systems Regulator (PSR) is closely monitoring the situation and the impact the coronavirus may have on the UK’s payment systems. The PSR stated that it expects firms to take reasonable steps to manage the evolving risks and any development that occurs in relation to coronavirus, and to report to them any issues that may arise. Its key priorities are ensuring the UK's payment systems continue to work well and markets continue to function efficiently.

This webpage sets out the key updates to date and points firms should be aware of. Please see our separate webpages on the response by the Bank of England and the Prudential Regulation Authority, how the Financial Conduct Authority has responded and the measures taken by the European financial regulators in response to COVID-19.

• Impact on SMEs – According to a report published by Pay.UK on 24 November 2020, more SMEs are satisfied (38%) than dissatisfied (13%) with their COVID-19 banking support.  However, inertia remains a problem as half of SMEs (50%) said they would not look to switch business accounts even if they were dissatisfied with their current bank or building society. Additionally, the report also shows that the importance of branches to SMEs has declined over the past seven months. While branches are less important, digital banking use has increased for some SMEs. Several firms have started to use online banking for the first time as 15% of SMEs say they use mobile or online banking more often than before the social distancing measures were introduced.
• Principles for payments regulation – On 9 September 2020, Elisabeth Stheeman's speech examined some of the possible risks resulting from innovation in payments. The FPC is committed to ensure that systemically important payment firms support financial stability, while allowing competition and innovation in payments to thrive. The FPC has therefore developed three principles for payments regulation, namely: (i) regulation should reflect the financial stability risk, rather than the legal form, of payments activities; (ii) payments regulation should ensure end-to-end operational and financial resilience across payment chains that are critical for the smooth functioning of the economy; and (iii) sufficient information should be available to monitor payments activities so that emerging risks to financial stability can be identified and addressed appropriately.
• Co-operation between regulators  - on 9 February 2021, the BoE and the FCA both published an update on their memoranda of understanding on the supervision of market infrastructure and payment systems. The BoE and the FCA held a consultation with financial market infrastructures, seeking feedback on how they and the Payment Systems Regulator had co-operated during the COVID-19 market events. They concluded that the MoU’s arrangements for co-operation remain effective. 
• Cash usage and alternative payment - The BoE's 2020 Q4 quarterly bulletin published on 24 November 2020 explores the impact of the COVID-19 pandemic on cash usage. During the COVID-19 pandemic, the way people use cash has changed, with less being used for transactions but more online shopping and contactless transactions. The barriers to alternative payment adoption may have been permanently broken by COVID-19. The BoE is neutral to the public’s choice of payment method and will continue to support people’s ability to choose how they make their payments.
• Confirmation of Payee (CoP) on 20 March 2020, the PSR published an update on the implementation of CoP, which aims to reduce fraud and misdirected payments in electronic bank transfers. In light of the significant pressure currently facing the directed banks, the PSR has permitted a delay in the roll out of CoP until 30 June 2020. Nevertheless, the PSR expects banks to provide appropriate protection to people and take steps to ensure customers are not disadvantaged from the delay, including refunding victims of fraud if CoP would have prevented it from happening.
• Contactless payments limit increased - UK Finance announced a spending limit for contactless card payments increase from £30 to £45 from 1 April 2020. The changes were in consideration before COVID-19 but, following several other European countries increasing their limits, the process was expedited. On 3 March 2021, the FCA announced a further increase in the strong customer authentication exemption limits for contactless payments. They were raised to £100 for single payments and £300 for cumulative transactions.
• PSR Annual Plan and Budget 2021/22- on 24 March 2021 the PSR published its annual plan and budget for 2021/22.  The Managing Director, Chris Hemsley, pointed out that the pandemic had both accelerated the trend away from cash to digital payments and shown that many people still need and want to use cash for payments, with £1billion per week being withdrawn from ATMs in April 2020 rising to £1.5billion per week in August 2020.
• PSR Updates – on 31 July 2020 the PSR published its first quarterly update, which covered: CoP, access to cash, and the PSR's strategy for the future. The PSR noted the seismic shift caused by COVID-19 and the positive reaction from the payments industry.  On 10 September 2020, the PSR's annual report and accounts for 2019/20 were released with a foreword by the Chair, Charles Randell, who referred extensively to the challenges brought by COVID-19 and pointed out that many consumers have moved to cashless payments and online banking, but that the pandemic has brought the risk of new scams emerging.
• Access to cash on 24 March 2020, the Financial Conduct Authority (FCA) announced it is with working with the Bank of England (BoE) and the PSR to ensure access to cash and stability with electronic payment providers given the potential changes in transaction numbers. They have also voiced their concerns about firms reminding consumers to be aware of fraud and protecting personal data. Similarly, the FCA has stated that banks and building societies are considered as providing essential functions and should remain open where possible. The PSR released a webpage on 8 April 2020 providing an update on its work supporting access to cash during this crisis. The PSR's priority is ensuring access to cash for consumers which ensuring safety of firms' workforces and it is working with the other members of the Joint Authorities Cash Strategy group in this regard. The webpage contains a series of FAQ's in relation to cash and payments, which the PSR will update periodically. On 16 June 2020, the PSR and the FCA published a joint statement setting out their approach to access to cash. The PSR and the FCA have aimed to deliver a better understanding of cash access to support coordinated action. The regulators have communicated with people and business, while focusing on the needs of the vulnerable. Further on 30 June 2020, the PSR and FCA also published an update on their joint work to map access to cash and published a webpage providing information on the coverage of access to cash. The PSR and the FCA released a joint statement on 13 May 2021, pointing out that although cash withdrawals had dropped year-on-year and the pandemic had seen a wider adoption of alternative payment methods, the easing of pandemic restrictions has seen withdrawals beginning to increase again – the regulators are therefore concerned that access to cash must be maintained to protect vulnerable consumers while also supporting the transition to digital and other payments.
• Branch closures - on 28 January 2021, the FCA published a statement asking banks to reconsider branch closures during the COVID-19 lockdown. The FCA is concerned that these closures could have significant consequences for customers. It reminded firms to ensure that they have considered the FCA's guidance and be able to demonstrate how they have taken into account the FCA's concerns and expectations. Additionally, when firms are closing branches or ATMs, they should communicate clearly with the customers and provide them with clear information about how the firm can help them access alternatives. 
• Current account switch service  (CASS) – On 6 January 2021, Pay.UK published a report on how the COVID-19 pandemic has affected switching attitudes and behaviours. The key findings of the report include:
  • consumer awareness of CASS has remained high over the course of the pandemic
  • the majority of switching rewards and bonuses were withdrawn towards the start of the year, with some reintroduction thereafter. This pattern is remarkably consistent with the pattern of switching activity overall, and with attitudinal evidence that suggests switching rewards are an important consideration for consumers
  • the main attitudinal reasons why consumers do not switch remain satisfaction with their current provider and not seeing a reason to switch.
• Annual perceptions survey – the PSR is reviewing its timeline to reach out to stakeholders to take part in the annual perceptions survey and it will follow with more details in due course.
• Strong Customer Authentication> (SCA) - the FCA released an updated statement on 30 April 2020 on SCA and the impact of COVID-19. It stated that firms are expected to protect customers and monitor their fraud rates to take swift action if they notice their rates rising. In light of the increased pressures faced by firms, the FCA will give the industry an additional 6 months to implement SCA for e-commerce (until 14 September 2021 from the initial 14 March 2021). In this regard, the FCA requires e-commerce firms to continue to manage their fraud risk and take all necessary steps to comply with the revised timeline, and expects UK Finance to develop a detailed phased implementation plan as soon as possible. The FCA will also consider, on a case-by-case basis, the next steps for firms that have not met their SCA requirements for online banking which have applied since 14 September 2019 (with an adjustment period until 14 March 2020). The adjustment period included time for third-party providers (TPPs) to migrate their customers to new or modified interfaces and the ability for account servicing payment service providers to provide TPPs with access to certain data. Firms processing contactless transactions should have made every effort to comply with SCA by 14 March 2020. However, the FCA is very unlikely to take enforcement action if a firm fails to apply SCA to cumulative payments exceeding €150 or five consecutive contactless transactions, but only if the firm has the necessary fraud monitoring tools and systems in place, and mitigates the risks. Further, in light of the recent concerns within the charity sector of disruption to contactless donations as a result of the new SCA requirements, the FCA stated that due to the social benefit and low risk of fraud, they encourage firms to work with the charity sector as they currently do now.

Useful Links

Payment Systems Regulator - COVID-19 - updates from the PSR

Help is at hand

If you would like to discuss any of the points arising out of the regulators' announcements or need assistance with reviewing your contingency plans, please get in touch.