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Comment on the Finance Innovation Lab, response to the investigation into retail and SME banking to the Competition and Markets Authority

I was discussing the future of UK bank accounts with Simon Deane-Johns from Keystone Law and he pointed me to a response from the Finance Innovation Lab to Competition and Markets Authority (CMA).

On reading this from my understanding is that new entrants to the banking arena are excluded from the current Bank of England Real Time Gross Payments system.  This prevents new entrants from accessing the wholesale payments infrastructure directly requiring them to do business only through the established  ‘Clearing’ banks.

I see the CMA could look at the impact of the existing market and its inherent resistance to new banks etc..   I believe the CMA could look at the impacts of creating a new and separate Bank of England low cost Real Time Gross Payments infrastructure to see if it would aid new entrants.  By modelling a new system open to more payment institutions to move funds between entities more efficiently the impact to the UK banking market for businesses and citizens could be assessed.

I see there is a need to separate between the existing Real Time Gross Payment system used for wholesale and very high value transactions from a low cost retail Real Time Gross Payment system.  The low cost system would be to manage up to an agreed maximum value to support when the existing system could continue to manage these larger transactions.

To keep the costs low an an infrastructure cost recovery model would appear most appropriate.  The issue of recovering the startup costs of any service may require some interesting discussons.

The Finnancial Innovation Lab comments about the functionality issues e.g. delays in knowing who paid funds into a Personal or Business current account, would need to be a requirement in any new solution.

I also believe that changing the existing systems to support many more organisations would be expensive, slow and high risk to the UK banking market.  Any new system or systems should aid future banking competition but we should understand any changes will take time when dealing with this type of critical national infrastructure and tactical solutions based on faster payments may be possible in the short term.




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