Payment services regulation and financial exclusion

The regulatory framework governing open banking and third-party payment initiation services has created compliance tensions between financial inclusion objectives and card network rulebooks—specifically how acquiring banks balance PSD2/PSD3 mandates against Visa and Mastercard network rules that can inadvertently exclude lower-risk merchant segments.

Financial exclusion in payments extends beyond consumer banking to merchant acquiring; how payment processors and card networks apply enhanced due diligence requirements disproportionately affects small business access to payment rails, creating a secondary exclusion problem regulators have not adequately addressed in recent guidance.

The Synapse insolvency raised questions about how payment service providers manage segregated client funds under FCA regulation—a gap that directly impacts financial inclusion efforts, as stricter capital and operational resilience rules post-failure may make it economically unfeasible for fintechs serving underbanked segments to maintain compliance.