On 20 July, at Mansion House, Mark Carney gave a speech announcing the new approaches as the Bank's response to a raft of recommendations contained in The Future of Finance Report, from Huw Steenis, also published yesterday.
The UK, said Mr. Carney, must respond to the rise of cashless payments, online shopping and the expectation of consumers that payments be direct, free and real time, online and in store. Such direct bank-to-bank payments, made via text or QR code, already exist in countries such as India, Sweden and the Netherlands. He noted changes already in play: the new payments architecture driven by Pay.UK, open banking and the rebuild of the Real Time Gross Settlement System.
To push these changes along, Mr Carney announced a consultation on extending access to settlement accounts held with the Bank to new payment service providers (PSPs). At present, UK clearing and settlement operates on a hub system: only the big commercial banks have accounts with the Bank while others get indirect access through a commercial bank agent. Direct access will give new digital banks and PSPs a great boost, providing speed, lowering costs and allowing them to scale more rapidly. It will also increase competition, improve financial inclusion and lower the cost of payments for citizens and SMEs. Mr Carney stressed access would be subject to strict checks and oversight from Treasury and the FCA.
This move also clearly opens the door to digital and crypto currencies becoming mainstream - with the potential to displace the need for clearing and settlement all together. Mr. Carney named the newly launched Facebook currency Libra as an example of the way payments might well go in the future. Clearly, the Bank wishes to be part of this process, to ensure oversight and supervision, rather than seeing such payment models operate and grow outside the mainstream space. Such currencies, he said, would ‘have to meet the highest standards of prudential regulation and consumer protection.’ This is a move to be applauded.
At the same time, Chancellor Philip Hammond has announced a major review of payments to be led by the Treasury to ensure infrastructures and regulations keep pace with technology. He named the initiative Open Finance – allowing consumers and SMEs access to a much wider range of products across their financial needs. Also in train is a long-term review of the regulatory framework to improve coordination among all the UK Regulatory bodies.