Will the UK be the leader in A2A payments?

It’s no secret that Europe wants to reduce its reliance on the US card giants. There’s been countless headlines over recent years and months. We’ve even written about it a few times (here , for instance, and here). 

The latest challenge?  UKPI (UK Payments Initiative). A company backed by 31 fintechs, high street banks, and challenger banks, aimed at pushing A2A (account-to-account) payments further into the mainstream.  

It’s been billed as the UK building a card scheme alternative to beat Visa and Mastercard. But this isn’t really a technology story about the UK vs card companies. 

The economics are what make this intriguing and why it’s more likely to succeed there compared to other markets.

The economics of it all

UKPI’s potential success comes down to interchange fees. In the UK they are capped at 0.2-0.3% – around 1/10th of the 2-3% charged for US credit interchange. American banks would never consider walking away from that level of income, but British banks shifting customers off card payments is a much lower revenue loss. This is a good place to start. 

These commercial conditions make the UK market a sweet spot for the new initiative. This doesn’t mean it will be unconditionally adopted. Banks are being asked to actively adopt a system that eats into their card income. It’s like asking a retailer to recommend a cheaper competitor – why would they be excited by the idea?  

But the low fee loss makes the change more tolerable. There’s also an element of wanting to keep UK payments strong and stable, which is more of a patriotic and strategic incentive than a commercial one.  

However patriotism obviously doesn’t pay the bills, so banks will still need to replace the lost revenue. The UK could look at PSD3’s initiative of monetizing premium API tiers as one option. Another is bringing fragmented payment flows back inside the banking ecosystem rather than paying out to third-party networks.  

UKPI has the environment to shine. It’s up to the leaders to prove the benefits for PSPs, merchants , and consumers.  

Open Banking’s second act

So, let’s talk about what UKPI means for the UK banking industry. The initiative is the next phase of the Open Banking era that began in 2018 and is the first new UK payments scheme since Faster Payments launched in 2008. Open Banking has achieved success in many areas. The regulation enabled 17 million consumers to share their current account data and make payments via third-party apps.  

But it failed to create bank-to-bank competition for cards. Building the rails wasn’t enough, and adoption was restricted to one-off, low-value payments. Open Banking never solved subscriptions, recurring payments, chargebacks, or consumer protections. The things which matter for quick, secure, and frictionless everyday commerce – think Netflix, utility bills, or being reimbursed after a scam – have stayed on cards.  

The hope is that UKPI will fix what Open Banking couldn’t.

What could make UKPI successful?

There are several features that UKPI can introduce that would help to fill the gaps that Open Banking hasn’t.

Commercial VRPs (variable recurring payments) 

This is likely to be the entry point use case – targeting the recurring flows that are traditionally dominated by card networks. Compared to direct debits, VRPs give customers more control over recurring payments. They can set limits on payments and frequency in real-time, rather than needing to cancel and re-arrange for every adjustment. It’s up to UKPI to embed the capability natively across UK banks to bypass the need for cards.

Embedded finance 

UKPI’s launch coincides with the UK’s broader expansion into Open Finance. Where Open Finance is the data layer, UKPI is the payment execution layer.  

Open Finance will move beyond current account data to other financial products like savings, investments , and pensions. This changes what’s possible inside both a bank’s app and third-party platforms.  

The vision is for a mortgage provider to be able to see their customers’ real income, spending patterns, and credit or debt obligations, then offer tailored products. But you need more than data access to close the loop. UKPI makes it possible to act on the expanded data available from Open Finance – keeping transactions within the banking ecosystem rather than through the card networks.

Better bank liquidity

A2A keeps the flow of transactions within the banking system. Rather than card networks taking a fee and merchants waiting 3-5 days for money to settle, the payments travel directly between accounts.  

It makes the commercial case for A2A payments: Instead of leaking revenue to external card schemes, more transactions are processed and settled by institutions. More money is available immediately, improving a bank’s working capital.

Increased interoperability

Where the EU suffers from a fragmented A2A landscape with schemes such as iDEAL, Bancomat , and Bizum operating independently of each other, UKPI aims to create a single unified scheme within UK banks.  

A unified scheme connects banks in the UKPI networks through a single integration. No need for bilateral agreements or proprietary connections. Every payment that stays within the network settles faster and with no card fees and generates transaction data that remains inside the ecosystem. As well as better working capital, you get richer customer insights that improve with every new bank that comes on board.

The missing scheme layer

This is what’s made Visa and Mastercard so successful and dominant. Open Banking suffered from a lack of dispute resolution, liability management , and consumer protection in A2A payments.  

UKPI is building that layer on top of existing real-time rails and Open Banking connectivity. With these protections at the scheme level, A2A payments can provide the same protections that customers expect from cards. It breaks down the barrier that’s impacted the adoption of A2A payments and helps to reduce reliance on Visa and Mastercard.

UKPI is about more than consumer payments

While many of the use cases highlighted above are B2C-focused, the same infrastructure can easily be used in wholesale and B2B payment flows. Instead of phone contracts and streaming subscriptions, think money orders, corporate collections, or remittances within UK banks.  

These are high-volume/low-friction payments that are almost more suited to B2B transactions than retail. Unlike consumer checkout, corporate treasury and collection flows don’t have the chargeback and liability protections that have kept businesses reliant on card rails, making A2A payments a more logical fit.

Hurdles to navigate

Despite the many opportunities for UKPI to become part of everyday banking, there are still some obstacles. Consumer adoption is a chicken-and-egg situation: merchants won’t push for A2A payments without customer uptake, and consumers need merchants to offer the service before they can use it. Both sides will need incentives to make the leap.  

As with all instant payment initiatives, fraud is a concern. In a push-payment world, APP scams are common, and while the UK’s reimbursement rules offer some protection, A2A transactions don’t offer the same consumer protection as card payments. Without that layer built into the scheme, consumers and merchants would be understandably cautious.  

Additionally, there’s the issue of aging infrastructure. The UK’s NPA (new payments architecture) – the program designed to modernize the systems that keep Faster Payments and BACS running – has been delayed, canceled, and renamed the Interbank Infrastructure Renewal (IIR). It means UKPI is building on aging rails, which weren’t designed to handle VRPs or embedded finance. It’s not a disaster but could constrain the scheme’s ambitions in the near term. 

Beat your rival by becoming like them

The launch of UKPI makes it official: banks have agreed that the only way to dethrone Visa and Mastercard is to copy and evolve their model.  Despite being direct competitors, the banks involved are uniting to change the retail and commercial payments in the UK. 

This isn’t some benevolent mission to protect British payments, and there’s the chance that A2A payments can cannibalize some banks’ revenue. So, work needs to be done to build alternative sources of income from the initiative, as well as integrating proper chargeback and consumer protections – then UKPI can become a win/win/win proposition for banks, merchants, and consumers.