PSR calls for UK payments infrastructure reform
The UK’s Payment Systems Regulator (PSR) says the nation’s payments infrastructure needs to undergo reform to increase competition and to better meet consumer needs.
The announcement was made as the PSR unveiled the final conclusions of its market review into the ownership and competitiveness of the infrastructure that supports three payment systems – Bacs, Faster Payments Service and LINK.
The PSR found that there is no effective competition for the provision of UK payments infrastructure for these three payment systems.
As a result of these findings, the PSR is consulting on a series of changes to improve the current situation. These include adopting a common international messaging standard to encourage new entrants, and creating a competitive procurement process that addresses consumer needs.
In addition, the regulator has identified the common ownership and control of both the payment systems and the infrastructure provider as a key concern.
Payment system operators are currently controlled by a small number of large banks, which also own and control VocaLink – the single infrastructure provider that the operators use to process payments. Namely, these banks are Barclays, HSBC, Lloyds and RBS. This is about to change, however, as MasterCard has recently entered into a definitive agreement to acquire 92.4% of VocaLink for $920 million.
Barclays has already gone on the record about the deal: its shareholding will be reduced from 15.8% to 1.5%, and it will receive £104 million from the sale. The agreement also provides the “potential” for a further maximum earn-out of £29 million if VocaLink’s performance targets are met.
It was actually the PSR that urged the bank owners of VocaLink to sell their stakes to boost payments competition in the UK.
Hannah Nixon, managing director of the PSR, states: “We need to future-proof the payments system so that the UK can continue to be at the forefront of payments innovation and deliver the best service to consumers. This means ensuring there is effective competition and that new entrants face the right conditions to enable them come to market.”
In terms of MasterCard’s acquisition, Nixon says this “could address the issues we have identified”.
She adds: “It will be for the relevant authority to consider the effects of this merger under merger control law, but the fact that discussions are taking place about ownership, and changes are being made, is an encouraging sign.
“In the meantime, we must not lose sight of the other issues that are causing concern. The problem runs deeper than just the ownership of the infrastructure provider and we will want to see further changes in the market if competition is to be effective.”
Recently, the PSR called for feedback on its Payments Strategy Forum’s draft plans.
The Forum, which was created by the PSR in March 2015, is made up of 22 experts tasked with planning the future of the UK’s payments sector.
The PSR was also pushing for more competition in the supply of indirect access to payment systems.
In its interim report “Market review into the supply of indirect access to payment systems”, the PSR said work to open up access is “generating increasingly positive results” but wanted more.
You can also read the industry views on what the sale of VocaLink means to the market:
Tom Hay, Icon Solutions: Watch out EBA, Swift and Visa – here comes Masterlink!
David Bannister, Ovum: Payments shake-up in the UK – the baby and the bathwater