OFT charged with cutting payments profiteering

OFT charged with cutting payments profiteering

UK banks could lose £1 billion in 'excess profits' on payment systems under new government proposals aimed at injecting fresh competition into the market for money transmission services.

Consultation on a new regulatory framework to ensure banking customers get a better deal from payment systems was announced by Treasury chief secretary Andrew Smith. Under the proposals, responsibility for delivering imrpovements in payments provision will be given to the Office of Fair Trading (OFT), which will make an annual report to the public on compliance with the drive to improve competition.

Smith promises: "There will be no hiding place for anyone seeking to take advantage of customers dependent on them to carry out essential daily banking transactions such as drawing cash, cashing cheques, transferring money or using standing orders and direct debits to pay bills."

Banks will be expected to tell customers - including small businesses - upfront exactly how much they are being charged for ATM, cheque and other services, says Smith. Bank profits on cheques, credit cards and funds transfer could fall by over £1 billion under the new regime he says.

The proposals represent the government's response to an inquiry into UK banking competition headed by former telecomms regulator Don Cruickshank. His report, published in March, accused banks of overcharging for payments services and recommended the creation of a dedicated regulatory body, PayCom, to ensure effective competition.

By handing responsibility for oversight to the OFT, the government has effectively buried the PayCom idea. Smith explains: "After careful consideration of how best to deliver an effective regulatory regime for consumers, we believe that this can best be achieved by using the existing framework and competition focus provided by the OFT."

The UK banking community, represented by the British Bankers Association, has given the proposals a cautious welcome. "We obviously share the Government's objectives of effective competition as well as openness and transparency," says the BBA in a brief statement. "It has never been suggested that current arrangements are perfect but they work better than they are often given credit for. There may be better ways of managing these things and we will read the paper with interest."


The consultation asks almost thirty key questions about the objectives and powers it is proposed to give the OFT. Under these proposals banks and others offering payment services will have to: tell customers clearly and simply in cash terms what their charges are; let new competitors into the market on fair, reasonable and non-discriminatory terms; base interbank charges, which customers usually pay in the end in some form or another, on actual costs, and take account of offering better, cheaper service in the future; work together to develop new, innovative and more consumer friendly payment systems; and ensure control of the UK payment systems cannot be used to stifle competition.

Responses to the consultation document should be received by 20 March 2001, says the Treasury.





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