The Payment Systems Regulator says the industry is making good headway in improving access to the UK's critical payments infrastructures, but warns that it will not hesitate to take regulatory action if specific problems are not addressed over the next 12 months.
The PSR’s report into competition in the supply of indirect access to interbank payment schemes has revealed that work to improve options for challenger banks and other new market entrants is generating increasingly positive results, with nine new banks expected to secure direct access in the coming year.
Hannah Nixon, PSR managing director, says: "Progress has been good and we are seeing some positive outcomes across the payments industry. We are opening up access so more challenger banks and building societies have a real choice between direct and indirect access, and we expect a number of them to exercise that choice in the coming year.”
Areas of concern include a reluctance on behalf of some banks to let in smaller payment services provider such as money remitters because of concerns over financial crime regulation in relation to money laundering and terrorist financing. The PSR is also vexed about the technical quality of real-time payments services, which may limit the ability of challenger banks and other large payment providers to compete in related markets, such as retail banking. Barriers to switching provider are also in evidence, reducing competitive pressures and preventing new entrants from securing the best possible price and quality of service.
The watchdog says it has identified a number of current and anticipated developments across the industry that should help alleviate concerns, noting that at least four organisations are planning to start offering indirect access, and two that are expanding their current services. Alternative access models for interbank payment systems are also emerging, including the development of aggregator arrangements for the Faster Payments Scheme (FPS). Problems surrounding financial crime regulation may also be dispelled by a number of reviews underway into how the rules are applied in the UK and internationally.
As a result, the PSR has proposed that it will support ongoing developments rather than take immediate regulatory action. However, Nixon says that if its concerns are not sufficiently addressed over the next 12 months it will take further action.
“While we have identified some specific concerns, the industry is making good headway and numerous developments have the potential to address the problems we are seeing," she says. "At this stage we do not feel that further intervention is the best course of action."