Why UK Payments Initiative needs the smart data statutory instrument

Regulators have allowed commercial open banking payments to start. Secondary legislation under the Data (Use and Access) Act 2025 is now needed to let them reach scale.

Open banking is becoming payments infrastructure

Open banking began as a way to share bank account data. It is now also a way to pay. Commercial variable recurring payments are the first large-scale use. A customer gives one standing permission, within limits they set, and an authorised provider can then take account-to-account payments without further steps. This gives businesses faster and cheaper payments for things now handled by cards and direct debit, on shared infrastructure that any regulated firm can use. It is becoming part of the country’s payments infrastructure.

The regulators allowed the scheme to start

Earlier this year the FCA and the Payment Systems Regulator said they would not, for now, prioritise competition enforcement against the agreed commercial model for commercial variable recurring payments. The Competition and Markets Authority took the same view. That non-prioritisation allowed UK Payments Initiative to be set up, to agree the scheme rulebook and to bring the first live payments to market without waiting for new legislation.

The decision is conditional and time-limited. It was meant to let the scheme start, not to govern open banking for the long term, and it does not give banks, fintechs and the businesses that build on open banking the certainty they need to invest in adoption across the wider economy.

What scale needs

Firms invest when they know the rules, who sets them, and that they will last. The next phase of open banking covers more use cases, more participants and far higher volumes, and it needs that certainty in three places: the technical standards every participant builds to, the terms on which firms get access, and the commercial model that funds the shared infrastructure. Today these rest on private agreement and regulatory forbearance. Mass adoption needs them on a statutory footing.

What the Data (Use and Access) Act provides

The Data (Use and Access) Act 2025 creates that footing. Its smart data framework, modelled on open banking, lets government require firms that hold customer data to share it, at the customer’s request, with accredited providers, and to set the standards and interfaces for doing so. It also lets the Treasury give the FCA power to regulate the firms and the infrastructure involved. The Act changes nothing on the ground by itself. It is enabling legislation: it sets out what government and the FCA may do, and leaves the substance for each sector to a statutory instrument.

What the open banking instrument would do

For open banking, that instrument is the decisive step. In substance it would:

•      require account providers to give accredited third parties access to customer data, and to payment initiation, through standardised interfaces;

•      set the basis on which participants are accredited and supervised;

•      require common technical standards, and an interface body to set and maintain them;

•      give the FCA power to make and enforce interface rules, and to oversee the central operator that runs the shared infrastructure;

•      put the funding of that infrastructure on a transparent, regulated basis; and

•      allow the competition order that launched open banking, designed for a mandated phase, to be replaced by a regime built for a commercial market.

Together these would put open banking on a footing of regulated standards, supervised access and accountable governance, which is what mass adoption requires.

Getting it right

The detail is for government and the regulators. A few principles will decide whether the instrument lasts. It should be proportionate, and able to extend from open banking to open finance without further primary legislation. Access should be open, fair and non-discriminatory, with established firms and newcomers on the same terms. The FCA’s oversight of standards, participants and the central operator should be clear and enduring. And it should be laid in good time, so there is no gap between the current interim position and the lasting regime.

Alignment and next steps

This supports stated government policy. The National Payments Vision set out a trusted, world-leading payments ecosystem built on resilient infrastructure and clear regulation, and the FCA’s priorities of competition and innovation point the same way. The instrument is how that policy is delivered for open banking.

UK Payments Initiative supports the instrument and will help government and the regulators get it right. The interim position has a clock on it. Bringing the instrument forward in good time will let open banking move from a successful start to use across the everyday economy.

From Principle to Practice: Why UKPI is the crucial test-bed for open finance

Three years ago, TrueLayer argued that the next phase of open banking would not be unlocked by waiting for more regulation, but by banks and fintechs choosing to work together commercially. That argument was rooted in a simple observation: regulation can unlock doors, but only aligned incentives keep them open.

The creation of UK Payments Initiative (UKPI) shows that this future is now moving from principle to practice. UKPI is an independently governed, industry‑owned company formed by 31 firms – including major UK retail banks and fintechs. Its remit is to turn Pay by Bank into a scalable alternative to cards and direct debit, initially by unlocking variable recurring payments (VRP), on commercial terms that work for everyone in the value chain.

This is a shift from today. The original competition basis for open banking prohibits banks from charging third party providers, like TrueLayer, for initiating payments. This ‘free access’ has been a huge boost for competition, reducing barriers to entry for fintechs, resulting in many new products and services being developed for consumers and businesses.

But to unlock new features, UKPI will facilitate bank fees for access. This will enable banks to meet the costs of further developing their open banking APIs, and invest in innovation to improve the customer experience and drive adoption.

As COO at TrueLayer and a board member of UKPI, I see UKPI as the first large‑scale test of a principle that will define the next decade of open finance: if you get the commercial model right, progress follows without the need to regulate and mandate every step.

VRP: The missing functionality for Pay by Bank

Variable recurring payments (VRP) have long been cited as “the next big thing” in open banking, a way to bring instant, account‑to‑account payments to use cases dominated by cards and direct debit. In practice, they’ve been slow to arrive for everyday scenarios like subscriptions, utility bills or ecommerce checkouts.

Today, VRP is limited to sweeping between accounts held by the same person: automating savings, or paying off credit. This is an add-on to the regulatory requirement for banks to provide APIs for payments and data (open banking). Sweeping accounts for more than six million payments every month in the UK; 20% of all Pay by Bank transactions. That is remarkable traction for a product still in its early, policy‑driven phase. It shows that, when the experience is good, adoption follows.

UKPI is designed to take VRP from that policy‑driven phase into a commercial one. UKPI will operate a commercial scheme for recurring payments initially in sectors including utilities, financial services and government, and soon will support much broader use cases, including ecommerce.

Why UK Payments Initiative matters for open finance

The FCA recently published its roadmap for open finance (extending open banking principles beyond banking data, to mortgages, pensions, insurance and beyond). In it, the FCA committed to collaboration with industry ‘on the launch of sustainable commercial schemes’. UKPI is the prototype for this kind of scheme. It will need to crack the economic conundrum of open banking, to demonstrate that commercial schemes are feasible in other sectors.

The problem UKPI is solving

Open banking regulation requires firms to open up their payments functionality to third parties for free, without contracts. This creates hugely positive conditions for market entry (low costs and complexity for entrants), which enables intense competition and innovation, and the development of new services like Pay by Bank which benefit consumers and businesses.

However, with this approach, the firms enabling the access via mandated APIs have fewer positive incentives. They must maintain the API to comply. The API is a cost centre and is viewed as such. This isn’t always the case (NatWest, for example, has created ‘Bank of APIs’ and launched its own successful open banking offering) but there is an acknowledgement, including from regulators, that an economically sustainable phase of open banking is needed to allow (and motivate) the ecosystem to scale.

The commercial model being progressed by UKPI will enable firms to charge a fee for access to payments functionality, allowing them to meet ongoing costs and potentially profit from the service, which becomes a product offering to invest in rather than a compliance exercise. A better service increases adoption and creates a positive flywheel: better product, more users, more income.

However, if the fee is too high, the open banking providers paying the fee will struggle to sell their services to businesses who want to use open banking payments. Volumes will decrease, and firms charging for access will get less fee income.

UKPI has been equipped with strong tools to take on this economic challenge. It has an independent pricing committee and has benefitted from extensive input from Frontier Economics on the optimum pricing model for its initial roll-out of variable recurring payments, summarised in this paper.

How the market reacts to the model, and how UKPI manages the reaction, will be the first true test. It’s an exciting and important time where we are truly putting principle into practice.