Mike Walters, CEO, Form3
As we enter a new year in payments, what will be the key trends that banks and payment service providers (PSPs) need to put on their must-action lists? To address these challenges, it is worth reflecting on a year in review of payments and how this will shape activity in 2025.
Firstly, in the UK, 2024 was the year that fraud became amplified and front-of-centre for banks and PSPs. There was increased responsibility for banks to offer customer refunds due to new APP fraud reimbursement measures going live in October. I see this fight against fraud continuing in 2025.
In the US, banks had to improve their technology to support the growth of real-time payments (RTP). Larger retailers such as Walmart are now offering customers pay-by-bank options, underpinned by real-time payments, so there is real pressure on banks to improve RTP delivery.
With these continuing challenges in mind, I will highlight payment trends that banks and PSPs must be on top of in 2025 – and also those likely to shape the industry over the next five years.
A new positive Vision for UK payments
Kicking off, my first trend is delivery of the National Payments Vision (NPV). NPV aims to enable collaborative working between the UK Government, the payments industry, and regulators, to ensure the UK has a fit-for-purpose payments ecosystem.
What I really like about NPV is its potential to leverage growth and investment opportunities in the business assets and the capabilities of the UK – this is something we’re really good at delivering in fintech and financial services.
So what does NPV mean for banks and PSPs? In the next 12 months, they are going to have to improve, incrementally, their tech to deliver the Vision. The technologies that will do best in an incremental change environment are those that are most agile, are most current, and are equipped for successful delivery for change.
In terms of the customer, NPV will call out and scrutinise the use of the Central Bank Digital Currency (CBDC) technology for payments, thus requiring user cases not seen before by the payments industry. It will mean that banks and PSPs must address account-to-account payments as an alternative to card payments, especially for commerce situations such as the paying of domestic bills.
When it comes to delivery deadlines, banks and PSPs are going to have to deal with a program that doesn’t actually have a defined end date – flexibility is key here. Our advice is don’t defer on making decisions on implementing fit-for-purpose technology, be proactive. Failure to action this will see banks and PSPs not being competive enough to grow.
In summary, NPV implementation means exploring existing technologies to see how these cope with agile-driven change. Crucial to implementing this tech transformation is for banks and PSPs to be honest. If they haven’t got the right experience and technical skills, then our advice is to look for scaled tech partners that can help.
Tackling fraud in 2025
In the UK, the key focus for banks and PSPs over the next 12 months will be identifying next steps to further tackle APP fraud. Banks will have to work together – whether they like it or not. It might be the case that they have to use technology partners to enhance the amount of data that’s being shared, to make it easier to catch out the criminals.
Fundamental to tackling APP fraud will be to concentrate on inbound payment flows. This monitoring needs to be taken as seriously as outbound flow monitoring. This somewhat different focus is essential in 2025. It has the power to enhance how financial services tackle fraud in the future.
Obviously the big question for the year ahead is: as an industry, have we solved the problem of APP fraud? The answer is not yet. On a positive note, work in 2024 should see a reduction in fraud to some extent, but it remains a growing problem. Banks and PSPs must put tackling fraud front and centre of operations.
Looking at the US market, I think we will see an increase in account-to-account, real-time payment fraud. Key advice for tackling this is to take the learnings from UK and European card ecosystem markets. In the US there is the opportunity to prevent fraud, rather than remediate a problem that already exists. Banks should be proactive rather than reactive.
I think the other interesting dynamic in the US is that UK financial regulators are starting to ask Big Tech companies to do more to tackle fraud. The fundamental question being: if Big Tech is doing more in the UK, why wouldn’t it do more in other markets such as the US?
Regulation focus in 2025
The big headline news for payment regulation in the UK is that the much-discussed New Payments Architecture (NPA) is now dead in the water, and is likely to be replaced with the National Payments Vision. Arguably, the Vision can deliver better outcomes than NPA ever could.
In Europe, the Verification Of Payee (VOP) activity should be a key focus for banks and PSPs. In a nutshell, the VOP scheme provides a set of inter-payment service provider rules, practices and standards in relation to the Single Euro Payments Area (SEPA).
In the same way as Confirmation of Payee (CoP) is an important fraud prevention step in the UK, VOP is the equivalent in Europe, as instant payments become more heavily mandated as a payment stream in this market. My advice is that banks and PSPs should get up-to-speed in preparation of VOP’s Scheme Rulebook and its API Specifications – with both going live in early October 2025.
Banks and PSPs will also need to secure their IT supply chain in light of the Digital Operational Resilience Act (DORA). This EU regulation came into force on 16 January 2023, and will be applied from 17 January 2025. Banks and PSPs looking to be DORA-ready should look for third party support if they haven’t got the resources needed in-house.
Finally, I think regulators will demand banks demonstrate better resilience in their payment processes, to thwart criminal activity. The way to improve resilience is for banks and PSPs to audit their legacy tech estates. Be honest – if it isn’t working, then fix it.
Payment trends for the rest of the decade
Alongside 2025 predictions, I wanted to address some wide-ranging trends the payments industry must tackle for the rest of the decade.
Great progress has been made to tackle APP fraud, but there is continued hard work to come for banks and PSPs. Collaboration here is key. Banks and PSPs must not rest on their laurels. The fight goes on.
I think the payments industry will continue to shift away from the use of cheques and cash for payments. It is safe to say though that we are still in a world where in five years’ time cash and cheques will still be used for payments. For those sectors of society that rely on these payment methods, that is a good thing.
In terms of volume, the demand for payments will increase, especially as these accelerate faster than GDP. Linked to this demand, I predict the volume of account-to-account payments will also continue to rise – in the US this will be driven by large retailers wanting to offer this to customers.
Finally, banks and PSPs must realise that they are in the middle of a tech investment cycle. This is needed to be able to successfully take advantage of NPV for example. This investment might be painful to deal with, but it will save time and money in the future, so it is a sound decision to make.
