What is this article about?
The regulatory developments in the e-commerce payment space, focusing on buy now, pay later (BNPL) regulation, the introduction of commercial variable recurring payments (cVRPs), and the review of digital wallets.
Why is it important?
These regulatory changes could revolutionise e-commerce payments by promoting innovation, increasing competition, and enhancing consumer protection, potentially leading to a more flexible and efficient payment landscape.
What’s next?
Further consultations and stakeholder collaboration will shape the final regulations, with the goal of balancing innovation with robust consumer protection and market stability.
Could more regulatory intervention help facilitate the most significant disruption in the e-commerce payment space since the PSR introduced strong customer authentication? With the consumer adoption of digital payments increasing, greater innovation and more competition, we explore some of the recent developments that could help revolutionise e-commerce payments:
The Government is expected to announce steps to regulate BNPL credit within its first 100 days in office. The previous attempt to regulate BNPL, which began in 2021, never reached the final stages, partly due to heavy debate on the approach to be taken. For example, some parts of the industry wanted BNPL agreements to comply with all requirements currently applicable to fixed-sum loans (such as getting signed credit agreements) to ensure a level playing field amongst lenders. Others argued this would add unnecessary friction into customer journeys and push customers to pay using more traditional and expensive forms of credit (such as credit cards).
As such, a delicate balance must be struck between managing risks to consumers and not stifling innovation and competition, which could lead to poorer consumer outcomes.
We expect to see a fresh consultation launched this autumn. Given that CCA reform is a huge undertaking that will likely take some time, the regulation of BNPL will likely be dealt with separately.
The expansion of variable recurring payments from sweeping use cases has the potential to open up a new payment method to compete with the most common types of recurring payments used today–Direct Debits and continuous payment authorities.
cVRPs enable account payments to be made using open banking methodologies. Many in the payments industry believe that cVRPs will offer both payers and payees (such as merchants) more flexibility and, in some cases, a lower-cost alternative, so they have the potential to become a competitive payment option. Work has begun to facilitate piloting such payments through model clause work coordinated by UK Finance and advised on by Addleshaw Goddard.
Industry and regulators are now keen to facilitate scale by creating and adopting a multi-lateral agreement. We all now await the outcome of the consultation on cVRPs run by the PSR, which is expected in mid-August. The response is hotly anticipated as the industry is keen to progress with this innovation.
The FCA and PSR’s Call for Information on digital wallets has significant implications for various stakeholders in the UK’s financial ecosystem. For consumers, it could serve to help promote alternative payment options, driving choice. For merchants, more consumer choice could help lower costs of accepting payments.
For PSPs, this could lead to an opportunity to gain access to more device functionality, driving innovation and opening the market to more competition.
In particular, the inquiry delves into how digital wallets could revolutionise e-commerce payments, for example, by enabling account-to-account payments and integrating digital wallets with open banking methodologies.
The FCA and PSR are also investigating digital wallet fee structures and their evolution over time. Understanding these fee models is crucial to assessing their impact on UK consumers and the broader market. Additionally, the regulators are interested in exploring alternative revenue sources for digital wallet providers and how these might influence the market dynamics. Whilst the next steps are uncertain, this could help identify current barriers to further innovation in this and face-to-face retail payments space.
For the e-commerce payments sector to continue thriving, a balanced approach that fosters competition while ensuring robust regulatory oversight is essential. Of course, regulators need to continue to stay abreast of technological advancements and consider how to adapt regulatory frameworks to encourage innovation while safeguarding consumer interests and market stability.
Stakeholder engagement is also crucial. Regulators, payment service providers, e-commerce platforms, and merchants must work together to understand the implications of new payment methods, identify potential risks, and develop standards and best practices that promote a secure, competitive, and innovative market.
The proposed regulation of BNPL, the introduction of cVRPs, and the review of digital wallets mark a shift in the e-commerce payments landscape. The intention is to offer consumers more flexibility, convenience, and choice. However, this shift also underscores the importance of competition and regulatory change in ensuring these innovations lead to positive outcomes for consumers and the market as a whole.
The future of e-commerce payments looks promising, as it strikes the right balance between fostering innovation and ensuring consumer protection and market integrity.
Regulatory changes in BNPL, cVRPs, and digital wallets aim to boost e-commerce innovation and competition while safeguarding consumer protection and market stability.
The Bank of England’s exploration of a digital pound and its integration with existing payment systems could modernise the UK’s financial landscape, enhancing efficiency, security, and inclusivity.
AI-driven solutions are transforming dispute management in the payments industry, enhancing efficiency, reducing costs, and improving customer satisfaction in an increasingly digital landscape.
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