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Work to open up access to payment systems is generating increasingly positive results according to the Payment Systems Regulator (PSR), which today published the final conclusions of its market review into competition in the supply of indirect access to payment systems.
The ‘Indirect Access Market Review’ is part of the regulator’s wider work to help banks, building societies and other payment service providers (PSPs) to access the payment systems which enable funds to be transferred between people or institutions. This increased access will help drive competition in the banking and payments sector and, in turn, will give more options to consumers.
Today’s report found that, although there are still some concerns around the supply of indirect access, the PSR expects the impact of its work alongside on-going and anticipated market developments, to address many of these issues.
In light of this, the PSR has decided not to take any further action at this point, but to continue to monitor and support these developments as part of its on-going access programme. The regulator will report on progress early next year in its annual ‘access and governance report’.(1)
Hannah Nixon, Managing Director, Payments Systems Regulator, said:
‘This market review is part of our broader strategy to support increased access to payments systems. The more we can open up access, the more challenger banks and building societies will be able to come to market and compete on a level playing field. This in turn will give more options to consumers.
‘Having fair and open access goes hand in hand with having a vibrant and competitive economy. So it’s essential that this market works well. As this report shows, progress has been good, and feedback on the interim report has been broadly supportive of our approach. However, we need to ensure that we maintain momentum and that the specific concerns we have identified are addressed by upcoming market developments.’
The PSR is already seeing positive progress in the supply of indirect access, in particular with some banks planning to become indirect access providers within the next nine months.
In addition, the Bank of England recently announced that it will be extending settlement account access to non-bank PSPs, and the Faster Payments Scheme (FPS) has announced that five companies have now gained accreditation to provide direct technical access to FPS via a new aggregator model.
Hannah Nixon, added:
‘Within the last few months we have witnessed a number of developments that have the potential to further improve access. But while we are happy with progress in the industry, our approach is not without its conditions. We remain committed to improving access, and will continue to watch market developments to see that our concerns are addressed. If not, we will review our current approach and take any action necessary.’
Draft guidance on PSR’s powers to require access to be granted
Alongside today’s report, the PSR has also published a consultation on how it proposes to approach its powers to require a payment system operator or an indirect access provider to grant access (or to vary the terms of existing access) to a payment system. The PSR has the power to do this if it receives an application from parties who are in dispute over access arrangements.
The PSR is inviting feedback on its draft guidance, which it hopes will provide clarity to access providers and access seekers about the PSR’s role in, and approach to, handling disputes about access to payment systems and about fees and charges relating to the use of services provided by payment systems.
Background
1. Summary of findings and potential solutions in the Indirect Access Market Review
The specific concerns the PSR raised in the report include:
· Industry responses to financial crime regulation, aimed at preventing money laundering and terrorist financing, have meant that some indirect access providers are less willing to offer access to smaller payment service providers such as money remitters. As a result these companies have alimited choice of indirect access provider.
· The PSR is also concerned about the ability of current technical solutions for real-time payments to meet the required quality of service. This may limit the ability of challenger banks and other large payment providers to compete in related markets, such as retail banking.
· Banks, building societies and other payment providers face barriers to switching indirect access providers, which reduces competitive pressure and prevents them from securing the best possible price and quality of service.
Current and anticipated industry developments that should alleviate concerns and help deliver widespread access, include:
· Market entry and expansion: The PSR is aware of at least four organisations that are planning to start offering indirect access, and two that are expanding their current services, bringing more choice to organisations requiring these services. Recent announcements from the industry serve as good examples of this.(1)
· Reviews of financial crime regulation: There are at least six reviews underway or recently concluded which may affect the way financial crime regulation applies in the UK and internationally. In the UK, the Financial Conduct Authority (FCA) has responded to de-risking by clarifying the requirements for banks to manage financial crime risks. It has also commissioned research to gather evidence about the nature, scale and causes of these risks and plans to publish a report shortly. These various reviews are aimed at improving the transparency, clarity and effectiveness of the UK’s anti-money laundering and counter terrorist financing framework.(2)
1 Improved access options: Alternative access models for interbank payment systems are emerging, including the development of aggregator arrangements for the Faster Payments Scheme (FPS).
2. The FCA’s response to de-risking and the clarification around the requirements for banks when managing financial crime risks can be found here.
3. The PSR was incorporated on 1 April 2014 and became fully operational on 1 April 2015.
4. 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.
5. The PSR is the regulator and concurrent competition authority for payment systems in the UK and all participants in payment systems (payment service providers, operators and infrastructure providers to those payment systems).
6. The PSR website.
