The Payment Systems Regulator (PSR) has today announced that the UK payments infrastructure needs to undergo reform in order to increase competition and to better meet consumer needs. (1)
The announcement was made as the PSR unveiled the final conclusions of its market review into the ownership and competitiveness of the infrastructure that supports three payment systems – Bacs, Faster Payments Service and LINK. The PSR found that there is no effective competition for the provision of UK payments infrastructure for these three payment systems.
As a result of these findings, the PSR is consulting on a series of changes to remedy the current situation. These include adopting a common international messaging standard to encourage new entrants, and creating a competitive procurement process that addresses consumer needs.
In addition, the regulator has identified the common ownership and control of both the payment systems and the infrastructure provider as a key concern. Payment system operators are currently controlled by a relatively small number of large banks, which also own and control VocaLink – the single infrastructure provider that the operators use to process payments.(2)
The regulator is proposing that the four largest banks that have common control of the payment system operators and the infrastructure provider should sell all or part of their stakes in VocaLink, in order to open up the market and allow for more effective competition and innovation.
Hannah Nixon, Managing Director of the Payment Systems Regulator, said:
‘We need to future-proof the payments system so that the UK can continue to be at the forefront of payments innovation and deliver the best service to consumers. This means ensuring there is effective competition and that new entrants face the right conditions to enable them come to market.
‘As it stands, the current system is not adequate and we need to see a change. There is not one single area of concern, but a series of issues that are entwined and require a holistic approach in order to see them resolved. The remedies we are considering are packaged to achieve just that.’
Competition for infrastructure services can lead to more efficient and innovative services for payments companies and their customers, while maintaining the resilience and reliability of the central payments infrastructure.
Hannah Nixon added:
‘At present, common ownership and control remains a key issue. However, the recent news that MasterCard intends to buy VocaLink could address the issues we have identified.
‘It will be for the relevant authority to consider the effects of this merger under merger control law, but the fact that discussions are taking place about ownership, and changes are being made, is an encouraging sign.
‘In the meantime, we must not lose sight of the other issues that are causing concern. The problem runs deeper than just the ownership of the infrastructure provider and we will want to see further changes in the market if competition is to be effective.’
Today’s review forms part of the PSR’s wider work to help encourage competition, innovation and increased service standards across the payments industry.
Hannah Nixon added:
‘The work being undertaken across the industry should not be looked at in isolation. For example, today’s market review ties into the work of the Payments Strategy Forum and should ultimately support the industry’s drive to create and innovate in the best interests of the consumer.’
The full report can be downloaded from the PSR website. In addition, the PSR has created a factsheet which summarises the report. (3)
Background
- Payment systems infrastructure is the hardware, software, secure telecommunications network and operating environments that support the clearing and settlement of payments.
- In the UK, VocaLink processes over 90% of salaries, more than 70% of household bills and almost all state benefits. Nearly every business and person in the UK uses its technology and last year the company processed over 11 billion transactions with a value of £6 trillion (Source: VocaLink website).
- The PSR gathered evidence and views from more than 70 stakeholders – including infrastructure providers, operators, PSPs (including independent ATM deployers), fintechs and associations – as well as conducting desk research and commissioning an international comparisons study.
- The PSR was incorporated on 1 April 2014 and became fully operational on 1 April 2015.
- 5. The PSR has three statutory objectives: to promote effective competition in the markets for payment systems and for services provided by those systems, including between operators, payment service providers and also infrastructure providers, in the interest of service-users; to promote the development of innovation in payment systems, in particular the infrastructure used to operate payment systems, in the interest of service-users; and to ensure that payment systems are operated and developed in a way that considers and promotes the interests of service-users.
- The PSR is the regulator and concurrent competition authority for payment systems in the UK and all participants in those payment systems (payment service providers, operators and infrastructure providers to those payment systems).
- The PSR website.
