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Retail Payments in 2026: Turning Regulatory Pressure into Competitive Advantage

As regulators tighten oversight of payments, 2026 will be the year compliance becomes a true differentiator in retail. From safeguarding to embedded finance, the new wave of regulatory change will transform the payments landscape - not just for financial institutions, but for every retailer operating in the digital economy.

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The FCA’s updated safeguarding requirements, due to take effect in May 2026, represent the most significant shift since PSD2. Firms holding customer balances will need daily fund checks, monthly reports and annual audits. For retailers with stored- value or in-app wallet functions, these changes will raise operational standards but also offer a new way to communicate trust to consumers: you money is protected as securely as a bank’s.

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Regulatory reform is also extending into contract fairness. Under new UK rules, PSPs will need to give merchants 90 days’ notice and written reasons before terminating payment contracts. This addresses long-standing industry frustration over sudden “de-banking” decisions, enabling retailers to plan continuity and protect customer experience.

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At the same time, Buy Now Pay Later (BNPL) and embedded finance will come under closer scrutiny, with new consumer-duty-aligned rules requiring clearer communication and affordability checks. Retailers will need to re-evaluate their partnerships and ensure compliance extends across their entire payment ecosystem - from acquirer to checkout.

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Although the safeguarding reforms do not directly amend KYC or AML obligations, they will intensify the need for strong data integrity. Firms must be able to link every safeguarded pound to a verified customer, reconciling accounts daily and maintaining full traceability. Weak or incomplete customer-identification processes will expose firms to both safeguarding and regulatory risk. In practice, this means tougher onboarding standards, fewer anonymous products and a more transparent flow of funds across the retail payments chain.

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Looking ahead, the proposed merger of the PSR into the FCA and the development of the UK’s National Payments Vision suggest a more unified, innovation-friendly approach to regulation. For agile retailers, this is a chance to align compliance strategy with product innovation - to build systems that are both compliant and customer-centric from day one.

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For 91����ԭ��’s readership, the takeaway is clear: staying ahead of regulatory change will require dynamic, data-driven intelligence. The retailers and payment firms that anticipate new rules, rather than react to them, will be best placed to turn compliance into competitive advantage.

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2026 will test every player in the retail payments chain - but it will also reward those who recognise that compliance is no longer a back-office function. It’s the foundation of consumer trust, innovation and growth.

Navigating the Great Shift: How RCM Keeps Banks Grounded in a Changing 2026 Landscape

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In 2026, Regulatory Change Management (RCM) will be essential for banks to remain competitive. Regulatory changes continue to evolve. In the United States, banks face a paradox: prudential regulators are streamlining examinations and increasing reliance on risk-based supervision, while rescinding certain guidance and laws. At the same time, states are strengthening consumer protections and privacy laws, and new regulatory frameworks are emerging for AI and crypto-assets at both state and federal levels. As a result, some requirements are easing, but oversight of how banks manage emerging risks is becoming more stringent.

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In this environment, banks must clearly document their compliance decisions. As supervisory priorities shift, banks need to demonstrate a direct connection between regulatory developments and their final decisions. New expectations include documenting AI model governance, ensuring explainability in automated decision-making, managing crypto-related exposures, meeting faster payments obligations, and enhancing operational resilience. These areas combine traditional compliance with new regulatory interpretations, making strong RCM capabilities critical to maintaining supervisory confidence.

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Successful banks will treat RCM as an integral part of their culture, not just a compliance requirement. Horizon scanning should be automated, reliable, and capable of identifying U.S. and global signals promptly to support timely decision-making. Banks must also embed regulatory judgment capture into their workflows, ensuring every interpretation, exemption, or control adjustment has a clear rationale, designated owner, approval process, and scheduled revalidation. This approach provides the defensible documentation that examiners now expect.

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Banks will also need stronger alignment across all three lines of defense. An effective RCM framework should map regulatory changes throughout the organization, particularly as banks pursue innovation. When implemented effectively, RCM becomes a strategic capability that enables responsible innovation and helps prevent the risks associated with an overly relaxed compliance posture during regulatory shifts.

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Ultimately, 2026 will favor banks that are proactive, transparent, and prepared to explain their decisions. While some regulators are relaxing requirements and others are introducing new rules, RCM will provide the foundation for responsible innovation. It will help banks remain compliant and maintain the trust of customers and regulators as the regulatory landscape evolves.

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Prediction: Shifting to Intent-Based Regulation and Trust-Centred Compliance

As we enter 2026, we step into a new year and new phase for financial services.

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Event-based monitoring and oversight, that is, catching harm after it manifests, will increasingly become a theme of the past, with intent and outcomes-based governance taking its place. We need not look further than the digital fraud space, where AI generated scams and human impersonation models are resulting in harm before payments have left consumer accounts, for example. Accordingly, my first prediction for 2026 is that we will see substantial progress in development of systems that prevent harm before it occurs.

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Regulators, I anticipate, will focus increasingly on model transparency, data provenance, explainability and require enhanced governance and stakeholder input.

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In parallel, digital asset markets will mature further. Tokenisation will expand as a presence in mainstream financial products. The question is no longer whether digital assets “belong” in the regulated financial system, but how they can be further utilised and new value realised. Regulatory frameworks for custody, capital, market integrity and consumer protection will converge with those of traditional finance. As use cases grow, the remnants of scepticism will fade, not least as markets experience transformative settlement efficiency within cross-border payment flows.

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I submit that the core of the 2026 financial evolution, however, will be something innately human: trust. Trust is built over time through consistency, reliability, honesty, and empathy. Trust is built by people. The next generation of compliance will only work if people; trust, and that includes feeling safe to ask questions early. To achieve this, we must bring teams on the journey.  Discussions around risk must be normalised, assumptions challenged, curiosity rewarded and knowledge sharing, celebrated not siloed. Compliance in 2026 will be redefined as a collaborative, forward-looking partner in innovation – no longer the disciplinarian, or reactive function it might once have been perceived to be.

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In 2026, compliance will solidify its reputation for delivering operational advantage. Firms will continue to weave regulatory change into strategic planning. In turn, we will see smoother implementation, reduced cost, and greater resilience. Ultimately, the organisations that thrive, will be those that invest not only in technology, but in the culture that guides them and enables them to succeed.

The UK retail banking sector is undergoing a period of profound transformation, driven by rapid technological advancement, changing consumer demand, and evolving regulatory priorities.And Banks face increasing pressure to balance innovation with compliance.

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Increasing Regulatory Demands

One of the most significant shift in regulatory landscape in recent years has been the introduction of the FCA’s Consumer Duty, which came into effect in July 2023. This legislation raises the standard of care financial institutions must provide, requiring them to deliver “good outcomes” for customers. The Duty challenges banks to rethink product design, pricing, and communication strategies to ensure fairness and transparency. Compliance is no longer just about avoiding harm rather it’s also about proactively ensuring value and trust.

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The PRA’s operational resilience framework, implemented in 2022, continues to strengthen expectations around operational resilience. Banks must be able to identify important business services, set impact tolerances, and demonstrate their ability to recover quickly from disruptions.

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Key Challenges for UK Retail Banks

The primary challenge for many institutions is managing regulatory complexity. Post-Brexit divergence from EU rules, alongside domestic reforms, has created an intricate compliance environment. Banks must interpret overlapping regulations while continuing to innovate, which increases both operational costs and compliance burdens.

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Data management and cybersecurity represent another major challenge. The UK’s Open Banking initiative stemming from the EU’s Payment Services Directive (PSD) 2 has revolutionised customer data sharing by requiring banks to provide secure access to third-party providers. And While this promotes competition and innovation, it also exposes banks to heightened risks around data breaches and fraud.

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With the new EU PSD3 in 2026, Regulators are now exploring Open Finance, which would expand data-sharing principles to savings, investments, and pensions, further increasing oversight demands.In addition, sustainability regulation is reshaping strategic priorities. The Bank of England and FCA are integrating climate-related financial risk into their supervisory expectations, supported by the government’s Green Finance Strategy and Task Force on Climate-related Financial Disclosures (TCFD) framework. Banks are now expected to assess and disclose their environmental exposures, embed ESG principles into lending decisions, and finance the transition to a low-carbon economy.

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Emerging Trends and Future Predictions

Looking ahead, regulatory attention will increasingly focus on artificial intelligence (AI), digital identity, and financial inclusion. As banks deploy AI for credit scoring, fraud detection, and personalised services, the FCA is developing guidance to ensure algorithmic transparency and fairness. A national digital identity framework is also on the horizon, potentially streamlining Know Your Customer (KYC) checks while reducing financial crime risks.

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Regulators are expected to strengthen third-party risk management rules, particularly regarding cloud computing providers, as part of efforts to safeguard operational resilience. Cross-sector collaboration between banks, fintechs, and regulators will become crucial in managing shared risks and building consumer trust.

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In conclusion, UK retail banks face rapid regulatory change requiring agility, investment, and cultural transformation. Viewing compliance strategically enables responsible innovation, stronger trust, and long-term resilience in an evolving banking landscape.

Financial institutions anticipated that a focus on deregulation in a second Trump Administration would lead to fewer regulatory changes and reduced compliance costs. The reality is that while the Trump Administration has deprioritized enforcement, it is working to reverse rules issued under the Biden Administration. Financial institutions continue to face increased challenges and costs in monitoring changes to laws, rules, guidance, and policy updates under a deregulatory agenda. Deregulation is still regulation.

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In addition to federal regulatory changes, the introduction of aggressive and expanded rules and legislation at the state level, as well as a disconnection from global financial reform efforts since the financial crisis, has created a complex web of regulatory changes to monitor and react to. Financial institutions have had to expand beyond prioritizing federal banking regulatory agencies and have moved to increasingly monitor regulators in the EU, UK, and Asia for predictability and stability in the regulation of the financial system. They are increasingly required to capture actions and forward-looking regulatory regimes, such as those of key international bodies (e.g., the Basel Committee on Banking Supervision, the Financial Stability Board, and the G20), on climate change, ESG, operational resilience, digital assets, open banking, and capital requirements.

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In the US, financial institutions have expanded their monitoring and regulatory change management programs to address oversight by state attorneys general, the offices of the governor, and other state administrative agencies. The Trump Administration's efforts to reverse policies by the Biden Administration have led states like California, New York, Illinois, and New Jersey, among others, to step in and address what is perceived as a void in oversight and consumer protections for financial institutions operating within their borders. New York, for example, has coordinated efforts across the Office of the Governor, the State Legislature, and the New York State Department of Financial Services to target financial institutions and their business practices (e.g., overdraft, cybersecurity, BNPL, etc.), aiming to 'deliver on our mission to build a more equitable, resilient, and inclusive financial system for all New Yorkers'. While deregulation can be an overall positive for financial institutions, rollbacks such as those implemented by the agencies highlight the challenge for financial institutions in weighing the extent to which they will fully adopt those changes.

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Financial institutions must assess the impact of various policy changes, including their costs and benefits, as well as how these changes may affect adjustments to products, services, business lines, and operations. This assessment must also consider the possibility that deregulation could be reversed under a future Democratic President and a Congress controlled by Democrats.

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As financial institutions look forward to 2026, the expectation is that the US will expedite the rulemaking process to ensure the Trump Administration can finalize as many regulations as possible before a potential change in control of the US Congress, where Democrats may slow or halt the rulemaking process. Financial institutions can mitigate and manage the rise in regulatory changes by broadening the scope of their regulatory monitoring programs, updating their regulatory impact analysis process to incorporate other areas of compliance and non-compliance risk, and clearly defining their appetite and tolerance.