When the banking system – and payments infrastructure in particular – was created, there was no consideration that anyone other than the banks would require access to it. How times have changed.
With the UK's history of sophisticated financial services, it is unsurprising that we are now firmly on the global map for FinTech innovation. As the saying goes, "build it and they will come". However, the emergence of new digital financial services providers
is bringing some uncomfortable conversations between the original 'owners' of these technology foundations, and those that are now seeking access, to underpin their next-generation offerings.
Put simply, access to payment systems operators, such as BACS, Faster Payments and CHAPS is reserved only for banks. This means that the myriad of alternative payment service providers (PSPs) and e-money issuers (EMIs) are forced to run on the rails of traditional
banks, despite being heavily regulated by the FCA themselves. In a world where thousands of payments are processed through non-traditional providers every day, this system no longer makes sense.
Key restrictions associated with this current model include a forced reliance on outdated, legacy technology. This operating system is quite at odds with the flexible modern IT architectures that we see amongst FinTech challengers. Needless to say, this
hinders innovation. But the most significant frustration for those chained to the back-end system of traditional banks is the lack of control. This typically covers restrictions on the size, number, and type of payments (e.g. international) that can be offered
to end customers. A direct result of the banks' own decisions around risk mitigation, forced by the financial crisis, these restrictions apply whether these payments are executed by the bank itself, or on behalf of clients using the bank's services. Many clearing
banks chose to rule out the provision of financial services to entire industries (such as Money Service Businesses – MSBs). The result? Any business relying on the payment infrastructure of traditional banks cannot serve this segment either.
Of course, in a commercial environment, we can't go too much further without talking about costs. As the number of clearing banks offering access to payments services is limited, alternative payments providers are forced to pay a mark-up price to operate
through a high street bank – which is in many cases up to 600%. With a greater number of credible banks, and hopefully some larger electronic money issuers (EMIs) accessing the scheme, a more competitive market would drive down existing pricing, enabling those
procuring these services to pass savings onto customers and continue their mission of creating a fairer financial landscape.
A final, but critical hurdle to gaining direct access for alternative players is that access to Faster Payments requires a settlement account through the Bank of England (BoE) – a service which is denied to non-banks. With responsibility for the nation's
economic health in its hands, it is understandable that the BoE exercises caution when granting access to settlement accounts. However, we must find a way to mitigate the risk from non-banks, without simply ruling them out altogether.
The Payment Systems Regulator (PSR), launched in April 2015, is without a doubt the biggest groundswell of thinking, momentum, regulation and political pressure to have been generated within the payments space for generations. One of its core objectives
is to work towards establishing access to traditional infrastructure for non-banks. While this is still a work in progress, the mere existence of the body has created positive movement among the payment schemes and technology providers that the PSR now regulates,
to not just review, but to act on initiatives that will drive viable updates to the access model.