Payments market update

The continued acceleration of embedded finance seems inevitable. Consumers want access to lending and payment options quickly, seamlessly and increasingly more from non-financial products, services and platforms they are more familiar with.

Industry players aspiring for long-term success must however carefully navigate the inordinate legal and regulatory complexities underpinning their embedded finance solutions and strategies, and their particular roles within the ecosystem.

In this insight we provide our take on some key legal considerations for those operating in the embedded finance space.

By 31 October 2024, Group 2 PSPs designated by the PSR must implement and use CoP. Read our full article for more information.

Our Payments Partner, Alex Williamson, says...

“We are seeing lots of PSPs choosing to contract with aggregators in order to indirectly participate with CoP. When doing so, PSPs should be weary of signing up to standard contracts that fail to adequately cover any critical outsourcing considerations, as they’re the ones who could land in hot water due to any gaps. Our strong team of experts can assist with any contractual gap analysis and negotiation that PSPs may require, as well as provide guidance on Pay.UK’s enrolment process and related documentation”.

Following its market review of the scheme and processing fees associated with Mastercard and Visa in the UK, the PSR has published a consultation paper inviting industry stakeholders to comment on its provisional findings and potential remedies by 30 July 2024.

Read our full article for more information.

Unsurprisingly, the use of AI across the payments sector is on the rise, as the actual and potential benefits are substantial. However, AI adoption equally carries practical and legal risks. Our recent insight looks at some of the key AI advantages and risks for payment ecosystem players.

From advising on new regulations to data privacy implications, commercial risk, governance, and helping you leverage opportunities to improve customer processes and revenue, TLT’s experts and AI Forum can help you prepare.

Our AI Navigator tool can also guide PSPs through the different elements of your AI journey, assessing your strengths, areas of focus and helping to steer you towards more strategic innovation.

On 8 May 2024, the PSR published a consultation paper on a proposed new specific direction to all PSPs directly or indirectly participating in CHAPS to reimburse customers who have been victims of authorised push payment (APP) fraud. At the same time, the Bank of England (as the operator of CHAPS) published its draft CHAPS reimbursement rules.

The intention of the new requirements is to mirror those set to be afforded to victims of APP scams who lose money via the Faster Payments System (FPS) and to provide consistent outcomes and processes for firms across both payment systems. Both the FPS and CHAPS reimbursement requirements are currently due to come into force on 7 October 2024.

Our full article summarises the key points arising from the proposed new reimbursement rules.

Our second article looks at the recent PSR’s letter dated 24 May 2024 highlighting key areas of focus for firms ahead of the mandatory APP scam reimbursement requirements.

Our Head of Economic Crime Compliance, Ben Cooper says...

“With just over four months until mandatory reimbursement comes into force, it is clear that whilst many firms are already taking positive steps, there is plenty of work still to be done. The PSR sets out that firms should focus on fully understanding the new requirements, how to manage claims and report data and consumer awareness. The PSR also points to the fact that prevention is better than a cure and reminds firms of the importance of reviewing their fraud systems and controls to ensure they are working effectively to prevent fraud.”

In May, we summarised HMT’s intended reforms to the PSRs and EMRs that, once enacted, would impact certain requirements and drafting of payment accounts relating to delayed payments, termination rights (and notice periods) and liability provisions. Read our full article for further details.

Due to the pre-election period of sensitivity and upcoming general election, the date on which the draft legislation is expected to be laid before Parliament, if at all, remains in a state of flux. We will continue tracking this over the coming months in our future updates.

The Joint Regulatory Oversight Committee (JROC) has published a consultation on the infrastructure to replace the Open Banking Implementation Entity, transitioning the UK legal and regulatory regime for Open Banking (and wider Open Finance) to a new legal entity and regulatory regime. Read our full article for details of the key points from the JROC consultation.

Our Head of Financial Regulation, Amanda Hulme, says...

“These proposals have been long awaited by the industry. They signal a path towards a transition away from a legacy arrangement that has been fraught with challenges. The industry will hope that the new arrangement paves the way for more equitable infrastructure funding and balanced decision making. However, the need to implement an Interim Entity as well as a later Future Entity has the potential to involve additional time and cost.”