When the UK first floated plans for a payments network built for the digital economy, the obvious question was whether it could take on Mastercard and Visa, whose dominance of the country’s card market has long seemed nearly unassailable.
What has emerged is perhaps more surprising. The effort has attracted back from Britain’s biggest banks and major U.S. lenders such as Citi and JPMorgan Chase, while even Visa and Mastercard have participated in laying the groundwork for the new payment rail.
The newly formed UK Payments Delivery Company (PDC) is now looking to raise roughly £50 million, a sum that should fund the new entity through its incorporation and mobilization stages over the next two years.
“It’s about modernizing payments infrastructure more than it is a play on financial sovereignty,” said Ben Danner, Senior Debit Analyst at Javelin Strategy & Research. “With the card networks and several prominent banks taking an active role in its development, it’s not simply about finding alternatives to U.S. organizations but expanding use cases for open banking, pay by bank, commercial payments, and preparing for the future of payments.”
A Landmark Strategy
Payment modernization has become a top priority for UK regulators in recent years, and the PDC represents a landmark in Britain’s broader financial services strategy. Earlier efforts included Bank of England’s (BoE) extension of operating hours for UK payment systems to support faster payments.
The UK government has also spotlighted digital assets technologies as a potential driver for payments modernization and has gone so far as to consider a mandate that would require the BoE to support innovation in payment systems and digital currencies.
A Significant Obstacle
Many of these objectives were first set forth in the UK’s National Payments Vision paper two years ago, including the creation of the PDC. Known as DeliveryCo in its early stages, the PDC was initially viewed as part of the broader global trend toward payments sovereignty.
However, like many efforts in other regions, the PDC is still years away from widescale implementation. Meanwhile, Visa and Mastercard currently handle roughly 95% of all card transactions in the UK, and these cards power most of the mobile wallet transactions that have become a mainstay for UK shoppers.
While this creates a significant obstacle for the nascent payments system, there will likely still be many use cases for the PDC once it goes live.