UK Payments Horizon Scanning Roadmap - Q2 2025

The Financial Conduct Authority ("FCA") has recently published their new five-year strategy, focusing on four priorities: being a smarter regulator, supporting growth, helping consumers navigate their financial lives and fighting financial crime. This year is also a big year for the regulators, with the UK Government encouraging regulator effectiveness and efficiency by merging the FCA and Payments Systems Regulator ("PSR").  

However, progress on retail payments is already underway, and we will start to see these come into fruition shortly. This insight aims at outlining key regulatory events for the next few months, Q2 of 2025 and beyond, in payment regulation.

Progress for stablecoin regulation

This year marks a turning point for cryptoasset regulation, with the sector expecting a first look at the draft regulation.  At the end of last year, several points were confirmed by the former UK Economic Secretary in November. Namely, that stablecoins would be regulated at the same time as all cryptoassets and that the Government would no longer pursue plans to regulate stablecoins under payment services regulation “at this time”[i].

In addition, greater certainty was provided for crypto-staking services, with regard to them not being considered as units in a collective investment scheme under UK financial services law.

A series of consultation papers on the regulation of stablecoins is expected in Q2 this year. They will address regulatory challenges/risks around backing assets and custody requirements. A further consultation is expected to include trading platforms, intermediation, lending, staking and prudential considerations also for Q2.

The aim is to get final rules published in 2026.

Open Banking and variable recurring payments ("VRP")

The Bank of England is expected to drive forward work to upgrade Faster Payments, and reform Pay.UK as well as assess other long-term infrastructure needs, setting out an approach by the end of Q2[1].

Work to improve the infrastructure would provide the perfect segue for improving account-to-account ("A2A") capabilities. Digital wallets could connect directly to a bank account and facilitate A2A transfers using regulated open banking methods, which would allow wallets to enable immediate transfers with Faster Payments. 

As announced in the FCA's five-year strategy[2], the FCA plans to prioritise seamless account-to-account payments to improve consumer choice. We look forward to hearing from the Bank of England in Q2, but also from the FCA on how it plans to take the lead for open banking.

In addition, we look forward to seeing how Open Banking Limited will lead on variable recurring payments ("VRPs") for Phase 2 as it takes over from the PSR. VRP payments will help customers have better control of regular payments and allow competition with current payment methods. Significant progress is expected in 2025.

We also look forward to seeing progression from the FCA and industry on commercial arrangements that underpin VRPs and use open banking for online transactions.

UK market review of card scheme and processing fees

In March, the PSR published its final market review of card schemes and processing fees which looked into indicators that the market may not be working well. The review found that fees had increased the cost of doing business since 2017, and that there was room for improvement around the understanding of fee information, which led to costs for acquirers and merchants, including small retailers.

The PSR had committed to publishing a consultation soon after its market review was published, but there is likely to be some delay with the FCA now taking over PSR functions. We anticipate this consultation will take place in Q2. 

PSR consultation paper on UK-EEA consumer cross-border interchange fees. 

The PSR reportedly found indications from its final market review on cross-border interchange fees a number of harms associated with the lack of competition in the market. The PSR proposed potential price caps as a remedy. This also included an initial interim price cap whilst further analysis was carried out to establish an appropriate methodology for a more permanent price cap. 

The consultation closed 7 February 2025. We are not sure when the results will be published, but expect it could be soon to keep up the momentum of work done.

It is worth noting that two industry bodies in particular, Payments Europe[3] and UK Finance[4], who represent issuers and acquirers in response to the PSR’s findings, have effectively said they do not believe that price regulation is the right way forward.

We look forward to hearing from the FCA on what the next steps will be.

Buy Now Pay Later legislation 

With the flurry of activity around the regulation of Buy Now Pay Later ("BNPL") over the past few years, we expect final legislation to be laid down in Parliament at some point in Q2. This will also be the first time we see a first draft of legislation. Following the last BNPL consultation which closed in November 2024. 

The FCA will then consult and finalise rules on disclosure requirements for BNPL agreements and publish final rules. 

Firms will be required to seek authorisation from the FCA to provide BNPL services. We expect a temporary permissions regime ("TPR") to be put in place which will give firms some runway for preparation of the new regime for applying for FCA authorisation. Firms will then be permitted to make use of their temporary permissions until approved or refused authorisation or until the end of the TPR if they fail to apply for a landing slot under the TPR. 

Conclusion

It is a critical time for regulation in the retail payment sector, with new regulations which could support and add legitimacy to services operating in cryptocurrencies, and Buy Now Pay Later spheres. But also, we hope to see the outcome/close of the PSR’s long-awaited market reviews on interchange fees and processing fees and what impact this could have on the sector.

The future of payments beyond 2025 could be exciting with foundations being laid for VRPs and A2A payments to add to future payments innovation and more competition for existing payment methods.

Please contact us at Bird and Bird for any more information on the above.

[1] PSR Strategy update January 2025

[2] Our strategy 2025 to 2030

[3] Payments-Europe-Response-to-the-PSRs-Market-review-of-UK-EEA-consumer-cross-border-interchange-fees-Stage-1-remedy-consulta.pdf

[4] Briefing Note.pdf

[i] Tokenisation summit