The UK payments industry is set to go through what has been called its "biggest shake-up in a generation", with a new strategy being launched to give consumers better control over their finances while reducing the risk of financial fraud.
Some major changes will be coming into effect over the coming years that all UK financial institutions will need to prepare for.
What's changing? The Payments Strategy Forum, a body established by the Payment Systems Regulator whose members include banks, fintechs, businesses and consumer groups, pointed out that the UK's payment systems are already seen as "some of the most advanced and resilient in the world". Approximately 700 transactions were processed every second last year, reaching a total value of £75 trillion.
However, with the digital banking revolution continuing at pace, the existing systems pose certain obstacles to new providers and services. The Payments Strategy Forum said this is putting consumers at a disadvantage.
One of the key measures proposed in the new strategy is a new 'Confirmation of Payee' safeguard, which ensures that the identity of the payee is confirmed to the payer before any funds leave their account. This will reduce the risk of people sending payments to the wrong account, either by accident or because of fraudulent activity.
Another new initiative is the 'Request to Pay' function, which will allow consumers to authorize regular payments - utility bills, for example - before the money goes out. People on variable incomes, who might find it difficult to meet certain financial obligations at the same time each month, are expected to benefit from this new service.
Perhaps the key initiative is to replace all the existing interbank payment systems with a new instant credit push service built around as a peer to peer network without using a central infrastructure. And allow additional services to build as layers on top of this core network. The intent is to make it easier for new entrants to join the network and improve the speed of implementation of new payments services.
Putting the proposals into context, Ruth Evans, chair of the Payments Strategy Forum, said it's becoming increasingly important for people to have more control over how they manage their money. One of the reasons for this is the emergence of the 'gig economy', which is seeing more people move away from traditional nine-to-five jobs and towards flexible working.
"People's needs are constantly evolving and we must address these demands," Ms Evans said. "When the internet was first launched, nobody could have predicted the extraordinary impact that widespread access to information would have on our daily lives. Our proposals have as much potential to transform the way we make payments in the decades to come.
"The introduction of Confirmation of Payee and Request to Pay, alongside our longer-term solutions for a new payments architecture, will revolutionize the way we handle money, with systems that are fit for purpose in the 21st century."
The Payments Strategy Forum has outlined a plan to meet the overall objectives of its strategy by 2020.
Just a first step? Consumer group Which? said the Payment Strategy Forum's proposals were a "welcome first step, but not a cure", stressing that more needs to be done to protect consumers from bank transfer fraud. Alex Neill, managing director of the group's home and legal services unit, said regulators must "go further" to meet the threat of increasingly sophisticated scams.
Hannah Maundrell, editor-in-chief of money.co.uk, said these measures are "just the start" and could have many positive effects for consumers, including fewer missed-payment fees and easier account switching. She described the plans as "brilliant news for everyone with a bank account", but also noted that they will create new data security challenges in the banking industry.
What seems entirely clear is that these reforms will have a big impact on the UK payments industry - for businesses and consumers alike - over the coming years. And this is a bold step by the regulator to get the industry experts to self-evaluate the challenges with current systems and to identify the best strategy to address the challenges. Currently the indications are this will be all be adopted by the financial community without any need for regulator enforcement.