The UK must continue to innovate in digital payments

The writer is deputy governor of the Bank of England for financial stability

It’s easy to think — as we’ve moved over my lifetime from paying with cheques to smartphones, and to settling large value payments in real time through the Bank of England — that payments in the UK are safe, easy and efficient.  

They are, but that does not mean things cannot be made better. In countries such as India, Brazil and Sweden, people can pay retailers directly from their bank accounts without using cards, and can pay using a mobile phone number or a QR code — allowing even the tiniest businesses to accept payments cheaply.  

More fundamentally, we should consider applying new tokenisation technology to conventional money, rather than in the cryptoasset markets where they were first employed. This technology allows the digital representations of assets on programmable platforms such as blockchains. It could potentially allow payments to be embedded more efficiently and deeply into our increasingly digital economy.

When shopping online, payments could be made automatically only once delivery has happened. That could support greater competition as people become more confident using a new online retailer or platform. And in wholesale payments between financial institutions, these technologies could enable faster and cheaper settlement, greater automation of back-office processes, and greater tradability of a wider range of assets.   

By driving greater choice and functionality, further innovation can spur economic growth. So, while the UK has made a lot of progress, we need to do more to modernise our payments landscape. So we are furthering our conversation with industry through a discussion paper published on Tuesday.  

Fundamental to the BoE’s responsibility for monetary and financial stability is confidence in payment systems and in money itself — or put another way, trust in both the rails (payments), and the trains that travel on them (money). We maintain that confidence by issuing money (banknotes held by the public, and reserves held by banks), settling payments between banks through our Real-Time Gross Settlement (RTGS) infrastructure, and by regulating both the money issued by commercial banks, and the interbank payment rails such as cards and internet banking.  

Technological innovation means we can’t simply keep the trains running on time, as vital as that is. Our roles as provider and regulator must evolve — the trains and rails must improve.  

As regulator, we’ve already proposed new regimes to enable new market infrastructure for tokenised securities, and to allow stablecoins — digital assets that aim to maintain a stable value by holding other assets as backing — to be used safely for real-world payments. As a provider, we will issue banknotes for as long as people want to use them. But we are also undertaking exploratory work on a digital version of banknotes — a retail central bank digital currency — as the use and usability of physical cash continue to fall. We have also made great progress in renewing our RTGS service, which will launch in the coming months.

But we need collectively to do more. We need to see greater innovation by banks, including in the UK’s interbank payment rails, to keep pace with the international and technological frontier. Money issued by commercial banks is used in the vast majority of retail payments made in the UK, and banks shouldn’t leave a CBDC as potentially the only game in an increasingly digitalised town. The BoE also will work closely with the Treasury, the Financial Conduct Authority and the Payment Systems Regulator.

In addition, we need further modernisation of the BoE’s own payments infrastructure. As tokenisation hits financial markets, we will launch a programme of experimentation with wholesale CBDC technologies, so we don’t lose the clear financial stability benefits of wholesale settlement taking place in central bank money. Those experiments will link up with similar initiatives at other central banks. We need the global payments infrastructure, in which the UK plays an important role as an international financial centre, to remain at the technological frontier, supporting openness, trade and growth.  

Ultimately, the goal is a robust and dynamic UK economy. Achieving it is a team sport, with many players in government and business. But one contribution the BoE can make, working with industry, is to redouble our efforts on innovation in money and payments — modernising trains and rails, as the fundamental infrastructure for commerce and the digital economy.