The UK Payment Systems Regulator (PSR) has on Thursday published the provisional findings of its market review into the ownership and competitiveness of the infrastructure that supports the payments systems; Bacs, Faster Payments System (FPS) and LINK.
The above-mentioned payment systems are currently owned by a relatively small number of banks, which also control the single infrastructure provider that they rely on to process payments, ‘VocaLink’.
In the UK, VocaLink processes more than 90% of salaries, over 70% of household bills and almost all state benefits. Last year the company processed over 11 billion transactions with a value of £6 trillion.
The evidence published on Thursday suggests that the common ownership of this infrastructure provider by this small number of banks is having a negative impact on innovation and competition in the industry. As a result, the PSR is proposing that these banks sell part of their stakes in VocaLink. This is set to open the market and allow for more effective competition and innovation.
In addition, the interim report showed that the way operators procure payment infrastructure services prevents other potential providers from competing in the field. That is why the regulator is proposing that a new competitive and transparent procurement process is implemented. It will be used as soon as an operator’s current contract with VocaLink comes up for renewal.
The report also shows that UK payment systems communicate with the infrastructure provider using their own ‘message’ standards that are not widely used elsewhere in the market. The PSR proposes that a common messaging standard is implemented to level the playing field.
Hannah Nixon, Managing Director, Payment Systems Regulator, said:
“The payments industry has evolved at a steady pace, but now is the time to ask whether or not it is operating best practice. The evidence we have gathered shows that common ownership is hampering competition and the speed of innovation in the market.
“There needs to be a fundamental change in the industry to encourage new entrants to compete on service, price and innovation in an open and transparent way.
“Our proposals will increase competition and create more opportunities for challengers, fintechs and other organisations looking to enter the market. This will create the conditions for greater innovation – which is in the interests of those that use the infrastructure services directly, and the UK economy as a whole.”
What next?
The report is now open for consultation, which will remain open until April 21, 2016.
You can find out more information on the topic by clicking here.