The UK government’s decision to scrap the Payment Systems Regulator (PSR) and merge its functions into the Financial Conduct Authority (FCA) has divided opinion across the financial sector.
Some industry figures hail the move as a necessary step to cut red tape and simplify oversight, while others warn that it could weaken fraud prevention, slow fintech innovation and put payments competition in a precarious position.
As the government pushes its broader economic agenda, the question remains: does this decision streamline regulation or create new risks for the payments industry?
A push for simplification
The PSR, which oversees payment systems including Faster Payments and Mastercard, will have its functions largely absorbed by the FCA. According to the government, this consolidation will reduce the complexity of regulatory compliance, particularly for businesses navigating multiple oversight bodies.
Prime Minister Keir Starmer framed the decision as a necessary shift to drive economic momentum. “For too long, the previous Government hid behind regulators – deferring decisions and allowing regulations to bloat and block meaningful growth in this country,” he said.
The Chancellor Rachel Reeves echoed this sentiment, arguing that excessive regulation has “choked off innovation, investment and growth”.
So will the move will deliver the benefits the government is promising?
The PSR had outlived its usefulness
Some see it as a long-overdue correction. Tony Craddock, director general of The Payments Association (PA), an industry group that focuses on payment technologies, argued that the PSR had become obsolete.
“The PSR was beyond its ‘use by’ date, with its structure and governance designed for a different world. Today’s world demands resourceful, agile, responsive regulators that are in tune with the market.”
Riccardo Tordera, director of policy and government relations, at PA went further, calling the decision a necessary consequence of regulatory missteps.
“The PSR very much sealed its own fate by continuing to ignore the industry’s advice on APP fraud.
“A long series of mistakes has triggered a complete rethink on the point of its existence. It’s about time a bold decision was made. Go ahead, Keir!”
Luke Charters, the Labour MP for York Outer, also positioned the move as a long-overdue correction. He welcomed the move as “a clear signal of intent to industry that the Government wants to restrike the balance when it comes to payments regulation.”
A welcome step for streamlining oversight
For others, this move was inevitable.
Dima Kats, CEO and founder of Clear Junction, a provider of cross-border payments for regulated financial institutions, sees it as a predictable step in line with the UK’s National Payments Vision (NPV), which had already signalled major regulatory restructuring.
He argues that streamlining oversight could create a more efficient regulatory environment while easing compliance burdens for financial institutions.
“This is a positive step forward, showing that the UK government is not just setting out a vision for payments but actively implementing it. Regulatory red tape has increased dramatically in recent years, making it harder for businesses like ours to navigate. We welcome this move to streamline oversight, as it will help reduce complexity and create a more efficient regulatory environment.”
However, he stressed that the FCA must take responsibility for managing the transition effectively to maintain trust and stability.
A positive move, if done right
Huw Davies, co-founder and CEO at open banking API solution provider Ozone API, likens these efforts to streamline regulatory efficiency to the current goings-on in the US, although explained that he hopes to see the UK adopt a more ‘measured’ approach.
“The urge to drive regulatory and public sector efficiency is a hot topic globally right now, particularly with the headline-grabbing activities of DOGE led by Elon Musk in the US. It’s no surprise to see efforts to drive efficiency and cut perceived red tape in the UK.”
Davies also explained how this move makes sense, given the overlaps between the PSR and FCA. “The financial institutions whose conduct is overseen by the FCA are often very dependent upon the payment systems overseen by the PSR,” he adds. “With oversight of open banking now moving to the FCA, the opportunity to drive increased coordination only increases. Beyond this, they are currently co-located together, which could be a benefit in any potential drive for more coherence and efficiency.
“The risk however is that any proposed merger could result in a period of internal focus and naval gazing, resulting in things slowing down, a risk that pockets of excellence may get lost along the way or that the teams with the very significant task of regulating and supporting the industry are distracted by the change.”
Could the move weaken fraud prevention?
Some question if the change will be beneficial. Ryta Zasiekina, founder of payments company CONCRYT, warned that merging the PSR into the FCA could dilute efforts to combat fraud and enforce security standards.
“With the rise of APP fraud, money laundering threats, and evolving cyber risks, payment security cannot become an afterthought in the push for economic growth.
“The PSR had a strong track record in holding firms accountable for fraud prevention, especially in pushing for liability frameworks that protected consumers and businesses. The fintech sector needs assurance that the security and innovation will continue going hand in hand.
“While consolidating oversight under the FCA might reduce complexity for businesses, there is a real risk that payment security and fraud prevention may receive less dedicated focus.”
For Dan McLoughlin, fraud specialist at Lynx, an AI-driven software company for financial crime, there are also short-term risks.
“As the PSR is wrapped into the FCA, we’ll likely see a slowdown in relation to the latest PSR regulations. There is bound to be disruptions as the entities merge, and this is coming at a crucial time in the regulation lifecycle – particularly in relation to fraud.
“The PSR has played a crucial role in fraud regulation, and banks continue to lose hundreds and thousands of pounds to fraudulent transactions every year. As the fight to stop criminals continues, having a regulator that is slow to react to the market poses significant risks.”
Innovation risks for fintech firms
Derrick Lynagh, head of strategic sales and partnerships at digital payments company MuchBetter, shared concerns about regulatory focus shifting away from emerging technologies.
“The UK has built a reputation as a global leader in fintech innovation, and regulatory clarity is crucial for companies like MuchBetter that are pushing the boundaries of payments technology.
“The consolidation of the PSR into the FCA could bring welcome efficiency, reducing compliance friction for firms navigating multiple regulators. If the FCA does not prioritise payments innovation with the same focus, there’s a risk that fintech firms, particularly those pioneering next-gen payment methods like wearables and biometric authentication, could face slower adoption and regulatory uncertainty.
“For this to be a positive step, we need the FCA to actively champion emerging payment technologies and ensure the UK remains a prime environment for innovation.”
The risk of losing specialist knowledge
Jim Conning, banking and alliances director at bank integration provider AccessPay, also touched on the importance of preserving specialist knowledge.
“While streamlining regulatory frameworks is fundamentally positive and reduces unnecessary complexity, there’s a significant risk in this transition that must be addressed.
“The specialised expertise within the PSR has been instrumental in driving targeted innovation in UK payment systems. Any dilution of this knowledge base could severely hamper our progress and potentially damage the UK’s hard-earned reputation for payment excellence.
“If we lose this critical knowledge during the transition to the FCA, we risk wasting time and resources while eroding the consumer and organisational trust that’s been painstakingly built. The industry will watch closely to see how this expertise is preserved and deployed in the new structure.”
Competition concerns and market oversight
Kamran Hedjri, CEO of PXP, an omnichannel global payment platform, talked about how the transition could affect competition in the payments sector.
“Moving the PSR’s responsibilities to the FCA could, in theory, make compliance more straightforward. The PSR was a strong advocate for improving payments competition, reducing card fees, and advancing open banking adoption.
“If the FCA does not give payments the same level of attention, we risk stalling progress in these critical areas. Merchants need fair access to diverse and cost-effective payment options, and fintech innovation depends on a regulator that actively pushes for market improvements.
“The UK has led the way in fintech growth and this change will be positive if the FCA champions payments innovation with the same energy as the PSR.”
Will the FCA maintain payments infrastructure oversight?
Alan Stephenson-Brown, CEO of Evolve, a provider of managed network solutions and IT services, addressed the potential consequences of the transition for payments infrastructure oversight.
“Payments don’t exist in a vacuum; they rely on the underlying network infrastructure that keeps transactions secure, seamless, and compliant. The PSR played a crucial role in ensuring that payment networks evolved in a way that prioritised resilience, competition and innovation.
“With its abolition, we need to be certain that the FCA will maintain that same level of oversight, especially as real-time payments and open banking adoption increase demand on network infrastructure.
“Streamlining regulation is a good move if it reduces unnecessary complexity, but if this shift deprioritises payments-specific challenges, businesses could face unintended consequences. The process of merging regulatory bodies can create temporary uncertainty and operational challenges, potentially disrupting the fintech ecosystem during the transition period. The UK has built a reputation as a leader in fintech and payments innovation – this change needs to reinforce that leadership, not hinder it.”
Zaki Farooq, co-founder and CTO of PayFuture, a global payment technology provider, appears to take a similar view, explaining the importance of ensuring we do not lose progress previously driven by the PSR.
“Regulatory consistency is essential to fostering innovation and cross-border growth. On the positive side, streamlining oversight could reduce operational friction and make compliance more predictable, which is particularly beneficial for fintech firms working across multiple jurisdictions.
“However, the PSR was a strong advocate for payment innovation and competition. The UK has long positioned itself as a fintech powerhouse. To retain this status, the transition must not come at the cost of progress in financial inclusion, next-gen payment technologies, and cross-border payment accessibility.”
A question of real impact
Scott Dawson, CEO of payments processor DECTA, placed the decision within a wider trend of regulatory shake-ups under the current government, and suggests it may be more about optics than effectiveness.
“The PSR/FCA news in some sense is irrelevant – we must ensure that any initiatives are effective. While regulation is rarely popular and financial companies too often try to circumvent them, we have an example from living memory of what happens when the sector is unregulated – the 2008 financial crash happened, in large part, because of a lack of effective regulation.”
“I’m confident this story will develop at pace over the next week and clearly be a major talking point in the PM’s speech, as it’s following a trend of, so-called ‘purging’ under the current Government – the chairman of the Competition and Markets Authority, Marcus Bokkerink , was removed last month amid concerns that it was hindering growth. Bokkerink was replaced by Doug Gurr, a former Amazon executive and both the chair and chief executive of the Financial Ombudsman Service have announced plans to step down.”
“Ultimately, we need alignment from authorities to avoid superfluous red tape.”
Just a logo change?
Jonathan Frost, director of global advisory for EMEA at financial crime prevention company BioCatch, also suggested that the move might be more cosmetic than structural.
“The closure of the PSR appears to be little more than a branding exercise. As a subsidiary of the FCA, sharing both office space and personnel, its functions are already deeply integrated. Beyond dropping a logo, it’s unclear what, if anything, will materially change.
“Good consumer outcomes in the financial services sector depend on the effective regulation of payment services. Given this, it makes sense for a single agency to ensure that financial institutions adhere to the expectations set out in the FCA’s Consumer Duty.”
The end of the road for the PSR
The PSR itself responded to the announcement by acknowledging the government’s decision as a “pragmatic next step in simplifying and clarifying payments regulation”.
While it highlighted its contributions to competition, open banking, and fraud protections, it committed to working closely with the FCA to ensure a smooth transition.
“We are very proud of the PSR’s record, which has only been possible because of the commitment and expertise of our dedicated people, working closely with parties across the payments’ industry. Legislation will take time, but we do not need to wait to realise the benefits of an even more streamlined regulatory approach.
“Doing so builds on recent work bringing the PSR and FCA more closely together. We have, for example, already joined the managing director of the PSR role with that of executive director of payments and digital finance at the FCA.”
