Regulation, technology and product innovation, new players and increasing customer expectations are changing the face of the payment industry in the UK and beyond. They are challenging participants to rethink what they need to do to be successful. Payments are key to an effective economy and are a core function for banks in terms of their product range and service. The world of payments is constantly evolving as individuals and businesses are using more and more convenient, accessible, electronic payment products.

An ever-increasing rate of change is now being experienced. This can be attributed to:

This changing landscape poses both challenges and opportunities. In some cases, it even blurs the lines between regulation and innovation. This is notable through the introduction of Open Banking; a requirement which demands financial institutions to open up their infrastructure with the objective of enhancing data-sharing and enabling third party payment initiation and competition.

In this article, we discuss how banks must balance the investment and innovation needed to meet customers’ expectations with the demands of the regulatory environment.

An evolving regulatory vision

Transparency, fairness to customers, competition and innovation are the declared thrust of much of the regulatory change hitting the payments world, along with the ever-present underlying requirements for controls and reporting.

Payments evolution: striking the balance between regulation and innovation

Figure 1: The payments evolution


There is a plethora of regulatory developments impacting the UK and Europe both directly (e.g. Open Banking) and indirectly (e.g. Structural Reform). Furthermore, ongoing scrutiny of AML and Sanctions measures won’t subside. Firms need to prepare themselves for changes in the regulatory regime and need to assess not only the risks but also the opportunities that these new regulations present, examples of which are set out below in Fig 2.

Customer expectations

Customers of the payments industry represent a broad spectrum from the individual consumer interacting in branch, online, by phone, at Point of Sale or via their mobile to global treasurers of large multinational corporate clients. Customers not only want value for money, they also want to play an active role in tailoring their own products and services. Their demands are characterized more and more by:


Figure 2: Assessing the risks and opportunities: Open Banking

The balancing act

Multiple layers of regulation and industry innovation converging to impact on payments systems and operations. Payment providers need to form a view about how these dimensions of demand will impact their payments, IT and operations. They also need to establish a holistic portfolio-management approach, set up to deliver change driven by what is known today but and to effectively phase in future regulatory demands and business needs (see Fig 3). Taking this approach, investments will help a firm respond not only to new regulatory requirements but also to business needs and enable the creation of innovative and forward-looking payments systems.

Diagram 1: Example high-level categorization of people features and performance

Figure 3: Meeting regulatory expectations

What should you do next?

1. Understand the regulatory and technological landscape and how it will drive change

Regulatory efforts to enhance competition and customer experience are catalysts for the innovation in the payment industry. Regulation can no longer be perceived as an independent requirement; it has become intrinsically linked with customer experience and innovation. To understand how these moving parts will impact your business, it is essential that you:

2. Determine your payments strategy

There are many permutations of how each bank can exist in the future. As we begin to see a fundamental shift in the way that customers and banking providers interact, the key questions to consider are:

3. Understand your readiness position and develop a road map

The next step is to consider your current readiness position and the steps you need to take to achieve your strategic goal.

4. Establish a holistic portfolio management approach

It is important to meet regulatory requirements whilst also serving business needs. Key questions to consider include:

Nobody can predict exactly how the payments landscape will evolve over the coming years, but we can be certain that it will undergo fundamental change. This is an exciting and challenging time for banks. The winners will be those who strike the balance between managing regulatory change and innovative thinking.

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