Agile and responsive: UK sets out digital payments vision

December 2026  |  FEATURE | BANKING & FINANCE

Financier Worldwide Magazine

December 2026 Issue

Developments in digital payment technologies, including innovations in tokenisation, open banking and distributed ledger technology (DLT), have the potential to transform how businesses make and manage payments.

However, regulatory frameworks have struggled to keep pace with rapid technological change. In the UK, modernisation has been on the agenda for several years, and HM Treasury’s recent Modernising Payment Services Regulation consultation marks a significant step in that process.

Part of the government’s National Payments Vision, which aims to create a trusted, competitive and world-leading payments ecosystem that supports economic growth, the consultation proposes a more agile and responsive regulatory framework designed to promote innovation across the UK payments sector.

As outlined in the consultation, the UK is moving toward a ‘multi-money’ ecosystem in which new forms of tokenised payments are enabled by DLT. These include certain stablecoins, which are cryptoassets designed to maintain a stable value by reference to fiat currency and reserves of backing assets, and tokenised deposits, which represent bank deposits in tokenised form.

Recognising the potential of tokenisation to reduce costs and improve efficiency, the consultation reinforces the government’s ambition to ensure that the UK’s payments framework can accommodate new forms of payment safely and securely, while enabling innovation to develop alongside traditional payment methods.

The consultation also emphasises the growing influence of artificial intelligence (AI). The emergence of agentic AI could usher in a new era of agentic payments, where AI agents act on behalf of consumers and businesses to identify products, compare options, initiate purchases and complete transactions seamlessly.

“UK payments regulations still largely follow the European Union (EU) framework we inherited years ago,” says Jack Wilson, vice president of policy and research at TrueLayer. “Now that the EU is rewriting its rulebook with Payment Services Directive 3 (PSD3), this gives the UK a chance to ask whether it wants to continue to mirror Brussels or chart its own course. This is the UK’s opportunity to develop a framework that accommodates innovation and new developments.”

Key proposals

Rather than retaining detailed requirements in legislation, the consultation proposes expanding regulators’ responsibility for setting rules. This approach would create a framework capable of responding more quickly to developments in the payments market.

In its analysis, ‘Modernising UK payments: HM Treasury’s proposed overhaul of the payment services regime’, A&O Shearman highlights several particularly significant proposals.

First, the Payment Services Regulations 2017 and Electronic Money Regulations 2011, which together authorise and regulate almost 1200 payment firms and electronic money institutions, could undergo substantial reform. The government is considering which requirements should remain in legislation and which should be delegated to the Financial Conduct Authority (FCA).

Second, the government proposes creating a single set of regulated activities covering both fiat and tokenised payment services, including tokenised deposits and UK-issued stablecoins. Existing authorised firms would, however, require a variation of permission to provide tokenised payment services. The intention is to create a more consistent regulatory approach as traditional and digital forms of money increasingly converge within the wider payments ecosystem.

Third, proposed open banking reforms would establish a long-term statutory and regulatory framework, including a new right of access for variable recurring payments and additional FCA powers under the Data (Use and Access) Act 2025.

Fourth, the consultation seeks industry feedback on how authentication, consent and liability rules should evolve to support the emergence of agentic payments. Policymakers are keen to ensure that consumer protections remain effective as payment initiation increasingly involves automated decision-making tools and AI-driven services.

Finally, the government is considering enhanced senior manager accountability within payment and e-money institutions to strengthen management of financial crime risks across the sector.

“The standout proposal is a new ‘right of access’ for fintechs,” notes Mr Wilson. “Also, the consultation asks key questions about whether banks should be remunerated for the part they play in open banking. We want to ensure that this does not result in a new ‘interchange’ problem, where payments become prohibitively expensive for merchants, and competition is eroded.”

The consultation also seeks views on which international developments, including the EU’s PSD3 reforms, the UK should reflect in its own framework.

Improved resilience

The consultation closed on 6 October 2026 and HM Treasury is now analysing responses from stakeholders across the payments, banking and digital assets sectors.

“Right now, most UK payments run through card networks, and when they have a serious outage or disruption for any reason, we feel the impact immediately,” says Mr Wilson. “If these proposals go through as planned, I think they will make a difference – building toward more choice for how consumers pay, which fosters resilience for the UK economy.”

Although many aspects of the proposed framework remain subject to consultation and further policy development, the reforms provide a clear indication of the government’s longer-term vision for UK payments regulation. The proposals recognise the importance of a strong and innovative payments sector in supporting economic growth while helping to maintain the UK’s position as a global leader in digital payments.

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Fraser Tennant