Small businesses in the UK face a significant shift in the payment services landscape. The Payment Systems Regulations 2024 aim to enhance consumer protection and address Authorised Push Payment (APP) scams. While these regulations primarily focus on Faster Payments between UK bank accounts, they signal a broader trend towards more secure and diverse payment ecosystems. For small businesses, understanding and adapting to these changes is crucial for remaining competitive and compliant in an evolving financial environment.
Understanding the Payment Systems Regulations 2024
The new regulations will cover Faster Payments that originate from and are sent to UK bank accounts. They are set to come into force in October 2024, with several important deadlines leading up to the implementation:
- By April 5, 2024: Pay.UK must publish proposals for effective compliance monitoring for obliged Payment Service Providers (PSPs).
- By June 7, 2024: Pay.UK is required to create reimbursement rules by amending the Faster Payment rules.
- October 2024: Both monitoring and reimbursement requirements must come into effect.
Key Features of the Regulations
- Reimbursement Process: Pay.UK has been tasked with building and facilitating the reimbursement process between PSPs. This aims to ensure that victims of APP scams can be compensated more efficiently.
- Timeframe for Decision: Sending PSPs have 35 business days to decide on reimbursing an APP scam case. This provides a clear timeline for resolution, benefiting both businesses and consumers.
- Evidence Gathering: Sending PSPs can “stop the clock” when contacting receiving PSPs to gather evidence for assessing reported APP scam cases. This allows for thorough investigation without penalising PSPs for delays outside their control.
- Scope of Coverage: The regulations apply to any form of UK Payment Service Provider (PSP) account that receives a scam payment. This broad coverage ensures comprehensive protection across various payment services and businesses. Businesses using PayPal as a payment method, such as major retailers, e-commerce platforms, and even online entertainment services, fall under this scope. For example, when PayPal casinos in the UK process a deposit or withdrawal, both PayPal (as the PSP) and the casino (as the merchant using a PSP) are subject to these regulations for transactions involving UK accounts. It ensures that whether a customer is making a retail purchase or engaging in online gaming, their transactions are covered by the same protective measures.
- Exclusions: International and crypto payment methods are not covered by these regulations. This is an important distinction for businesses operating in multiple jurisdictions or considering cryptocurrency adoption.
Why Broaden Payment Options?
While the regulations primarily target PSPs, small businesses will feel the ripple effects.
Expect more rigorous fraud prevention and detection processes as well as potential changes in payment processes that may affect customer interactions. Adapting to new regulations may incur additional expenses and new guidance on treating vulnerable customers may require policy adjustments
- Increased Revenue: Small businesses offering multiple payment options can increase their revenue by nearly 30%. This significant boost demonstrates the importance of payment flexibility for customer satisfaction and sales growth.
- Customer Preferences: With 43% of small business customers carrying less cash than a year ago, adapting to changing payment habits is crucial for staying competitive.
- Attracting Younger Customers: 40% of small businesses believe that accepting more payment types will help them win over young customers.
- Global Reach: Offering diverse payment options can help businesses tap into international markets and cater to a broader customer base.
Strategies for Expanding Payment Options
Embrace Digital Wallets
Digital wallets like PayPal, Apple Pay, and Google Pay are becoming increasingly popular. They offer:
- Quick and secure transactions
- Reduced transaction costs compared to traditional credit card processing
- Enhanced customer experience, especially for repeat buyers
- Potential for increased customer loyalty through integrated rewards programs
Consider Cryptocurrency Payments
While not directly covered by the 2024 regulations, cryptocurrency payments are gaining traction:
- They can attract tech-savvy customers and position your business as innovative
- Offer lower transaction fees for international payments
- Provide faster settlement times, improving cash flow
- Potential for increased security through blockchain technology
Implement Text-to-Pay Solutions
35% of customers are interested in paying via text, yet only 4% of small businesses offer this option. Implementing text-to-pay can:
- Streamline the payment process, reducing friction in transactions
- Improve cash flow by facilitating quicker payments
- Enhance customer convenience, potentially leading to increased sales
- Provide a direct communication channel for payment-related issues
Explore Point of Sale Financing
Offering “buy now, pay later” options can:
- Increase average order values, as customers may be willing to make larger purchases
- Attract customers who prefer flexible payment terms
- Compete with larger retailers offering similar services
- Potentially reduce cart abandonment rates in e-commerce settings
When implementing these options, ensure compliance with relevant financial regulations and carefully assess the associated risks.
Leverage Open Banking Payments
As regulations promote open banking, consider integrating account-to-account payment options. These can offer:
- Lower transaction fees compared to traditional card payments
- Faster settlement times, improving cash flow
- Enhanced security features, potentially reducing fraud risks
- Improved data insights for a better understanding of customer behaviour
