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UK gov imposes more competition on UK payments

On 20 March, the UK chancellor presented this year’s national budget. It announced a ‘Regulator for payment systems - The Government will bring the payment systems into a competition-focused regulatory regime. It will formally consult on this shortly after this Budget.’

Today, HMT has issued the consultation paper; it is accessible here.

For the UK’s Payments Council, consultation is an ongoing activity.  According to the CEO of the UK Payments Council, presenting at a Payments Forward event on Thurs 21 March, its consultation process is wide ranging. All stakeholders in the payments business – which he defined as ‘someone doing something that looks or feels like a payment’ - are invited. All views and opinions are being equally considered – unlike the way the national payments schemes are governed, where votes are weighted towards the major current users.

Six specific themes were highlighted in the Council’s work on its Roadmap. Globalisation and International Payments and transfers;  ID Assurance; realtime account to account payments and accounting; rich data for invoicing; standardisation of formats and interfaces; efficient provision of traditional payments schemes. Of these, the international theme is new and thus particularly significant. All the UK’s current schemes have a domestic only remit, but its population is becoming more diverse, and its trade increasingly global. According to a BBC report on the 2011 census, about one in eight - 13% - of residents were born outside the UK.

A number of groups, such as UKMTA and IAMTN which represent mostly non-bank payments services providers, will welcome the opportunity to be included. Following the advent of the EC Payments Services Directive (PSD) in 2009, there are now 316 Authorised (and hence regulated) Payments Institutions in the UK; approximately 55% of the total number in Europe. Many such firms address fast-growth niches through innovations of which established banks are often late adopters; frequently in the cross border area.

‘Challenger Banks’ are lobbying for fairer access to the payments systems. There has been only one new full service retail bank in the UK in the last 100 years, Metro Bank. Other new entrants, such as ‘Bank of Dave’ have found the barriers to entry to be considerable (‘Bank of Dave’ is now established as a ‘savings-and-loan’; an outline of other types of alternatives to the ‘High Street’ banks can be found here. )

Any such barriers to the payments schemes may well be entirely fair and appropriate. Direct members of them have invested considerable sums; new joiners must expect to contribute.  Furthermore most schemes are ‘designated’; they are systemically important, and new joiners must be vetted to ensure new risk is not introduced, and existing risks and costs are shared appropriately.

The consultation process should help to identify whether any barriers lie in access to the payments systems, or – perhaps more likely - in a broader banking-related area. It should also consider the kinds of barriers. Barriers to growth are probably more important than barriers to entry. And perhaps the scope can be reviewed. The payments business is mostly about posting debits and credits; with today’s technology, the potential is far greater. The Lisbon Strategy, looking to make the EU "the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion", could be part of the renewed objective.

Hopefully, the collaborative approach will result in solutions and improvements being found without the need to resort to regulation. Recent experiences in other countries may help to inform that approach. Regulators in the US, whilst imposing transparency requirements (when will it arrive, how much will arrive, and what’s the cost) on cross border transfers, included other requirements which were unachievable; thus requiring amendment to the regulation, and consequently, delay in the benefits being made available to US consumers. An alternative approach, very successfully proven by the establishment of CLS Bank, demonstrates that close collaboration between policy makers and payments experts can result in excellent outcomes without the need for regulation.

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This post is from a series of posts in the group:

Payments strategies 2015-2020-2030

Payments systems visions, strategies, trends, pilots, forecasting, and planning for the short-, medium-, and far-term.


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