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Payments regulator blows away bank monopolies on infrastructure projects

07 December 2016  |  10004 views  |  7 London Swiss Re building

The UK's Payments Systems Regulator is to open the door for third party technology providers to compete in the provision of national payments infrastructure supply for the Bacs, Faster Payments Service and the Link interchange network.

In a market review conducted earlier this year, the watchdog identified the common ownership and control of both the payment systems and the infrastructure provider as a key concern. It also cited the need to adopt a common international messaging standard to encourage new entrants.

Under its proposals to shake up the provision of payment services, the PSR intends to mandate a competitive procurement process that will enable new infrastructure providers with different technology to enter the market. It will also push forward a common international messaging standard for Bacs and FPS based on the ISO20022 specification to lower barriers to the market.

Describing the plans as a 'generational step" towards wholesale change in the UK's payments system, the PSR notes with approval Mastercard's planned takeover of VocaLink. The proposed transaction is subject to merger approval by the Competition and Markets Authority. The PSR says that if the acquisition is blocked, it will continue to press the banks to sell their stakes in the company.

The PSR's proposals dovetail with the work of the Payments Strategy Forum, which was convened to to chart a new vision for the nation's financial plumbing. The PSF has recommended the consolidation of Bacs, the Cheque & Credit Clearing Company, and Faster Payments as the springboard for a new architecture to level the playing field for non-bank competitors and simplify the processing of financial transactions.

The PSR expects that the industry will soon begin preparations for several procurement exercises, including for any central infrastructure requirements for the Forum’s new payments architecture.

Hannah Nixon, managing director of the Payment Systems Regulator, says: "The remedies we are putting forward today are another step in our strategy to bring about a once in a generation change to UK payments. This will promote more effective competition and innovation that will help better meet the needs of all users of payment systems - be they consumers, small businesses, or banks."

In a speech to a Payments Strategy Forum meeting in late November, Andrew Hauser, executive director, banking, payments and financial resilience, Bank of England, was already looking ahead to the substantial workload such a major revamp would entail. "The challenge now is to translate the high level aspirations in this document into something much more concrete," he says. "That means delivering a retail payments design that is technically feasible, secure, and aligned with the Bank of England’s settlement models. It also means identifying who will build, and pay for, the new system: no small challenge at a time when the industry faces many competing demands on its resources."

Comments: (7)

A Finextra member
A Finextra member | 07 December, 2016, 12:56

"alongside established bank-controlled monopolies such as Bacs, Faster Payments Service and the Link interchange network." That will be Mastercard when they buy VocaLink will it not?

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A Finextra member
A Finextra member | 07 December, 2016, 13:01

Not sure I get your point - Mastercard aren't owned by the banks?

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A Finextra member
A Finextra member | 07 December, 2016, 13:13

My point is that Mastercard will acquire the infrastructure that enables these schemes to operate. The UK will move from a UK bank-controlled monoploy to a US Corporate-controlled one.  

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A Finextra member
A Finextra member | 07 December, 2016, 14:33

Wait and see, and its not long either.... 

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A Finextra member
A Finextra member | 07 December, 2016, 16:03

Theoretically players such as Dovetail, Bottomline, ACI and others could all enter the  market, MasterCard may find they are buying a  bucketful of technology and service revenues that slowly leaks away in the years to come. It would appear that MasterCard are keen to diversify out of cards...  

Not sure what the fines will look like if MC overprice core payment services

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Tom Hay
Tom Hay - Icon Solutions Ltd - London | 08 December, 2016, 10:31

Umm ... there is "a competitive procurement process" already in place. VocaLink have processing contracts with the various schemes, and those contracts periodically come up for renewal. The PSR needs to address the deeper issue of why the renewal is always awarded to VocaLink and never to alternative bidders.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 08 December, 2016, 17:38

@TomHay + 1. "Incumbent power", I guess!

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