The future of payment systems – and the PSR
Speech by PSR managing director Hannah Nixon at the British Bankers’ Association: Future of Payments conference, 24 September 2014.
A little over two months ago, I joined the PSR as managing director. I’ve entered the payments world – and indeed the PSR – at a really exciting time as we prepare for our full operational launch on 1 April next year.
More importantly, the industry is potentially on the brink of a revolution, driven and enabled by technological change. As the BBA’s recent report ‘In your hands’ highlights, the way people spend, move and manage their money is changing. And payment systems are at the forefront of this. Mobile banking, Paym, contactless, and cheque imaging are recent examples of just what the industry is capable of.
The payments landscape is transforming. As we all know, payments are essential to the smooth running of the economy – and they’re complex. Some £76 trillion flows through them every year, touching everybody and every part of the economy. We estimate that we will regulate processes for over 21 billion transactions each year.
So the stakes are high. It’s important we get our regulatory role right and that industry plays its full part in delivering for users and consumers. If we're to do that, it's vital that we understand the views and concerns of all stakeholders.
I’m aware that many of you and your organisations have engaged with the PSR over the last six months or so. That engagement has been enormously helpful to us. So thank you. And please do stay engaged as we develop and implement our regulatory framework.
What I want to do today is to introduce you to the PSR - and to update you on where we have got to, outline our plans for the immediate future and give you a flavour of the type of regulator we will be.
Government and regulatory interest in the payments industry is nothing new. The most recent round of interest probably goes back to the Cruikshank Report in 2000. Since then we have had an OFT market study, establishment of a Payment Systems Task Force, and consideration by the Independent Commission on Banking.
But the advent of the PSR marks a sea change, as payment systems will be directly regulated for the first time.
On the question of who we will regulate – in a nutshell, we will regulate those schemes deemed by Treasury to be systemically important to the economy. Treasury will consult shortly on the parties it intends to designate – but we expect it to be the big UK interbank schemes and the major credit card schemes operating in the UK.
Treasury intends to make its decision on designation before our powers come into force on 1 April next year.
But what are our objectives? What is the PSR trying to achieve?
We have three very clear statutory duties, which are set out in the Banking Reform Bill (2013):
- to promote effective competition in payment systems and the services they provide
- to promote innovation in payment systems
- to ensure that payment systems are operated and developed in a way that takes account of, and promotes, the interests of service users
Importantly, the first two are drivers of better outcomes for users and consumers − we don’t simply want innovation and competition for their own sake. And the third duty underlines that.
So we have three core areas of focus. We will pursue those duties relentlessly, being evidence-based and proportionate in the way we do so.
We have been given strong regulatory and competition powers, including:
- giving direction and imposing requirements regarding system rules
- requiring access to and varying agreements relating to payment systems
- the power to require a disposal of interest in a payment system
- concurrent competition powers with the Competition and Markets Authority (CMA)
Progress so far
Since our launch in April this year, the PSR has been working to formulate our regulatory approach. We have engaged extensively with a broad range of interested parties. We’ve held over 200 meetings with more than 100 organisations, as well as six stakeholder workshops. We have met consumer representatives, banks, challenger banks, businesses, interbank schemes, card schemes, Government, innovators, suppliers and infrastructure providers. That engagement process has been immensely helpful in shaping our thinking.
Vision and approach
So what are we looking for from the payments industry?
At root, we want to see payment systems that work well for those who use them.
That means, we want to see an industry that:
- is focused on the needs of service users and end-customers
- is innovative and open to both technological and commercial innovation
- forges new partnerships to meet the challenges of the futures, and
- invests for the future with a strong focus on efficiency
Delivering that will mean a real mindset change on the part of industry.
Yes, we have a resilient payments industry today. But simply continuing as we have always done in the payments space will not deliver what is needed. It won’t keep up with the demands that consumers and users are placing on the system for new ways of doing things.
Our regulatory approach will be focused on delivering the mindset and behaviour change needed.
I’d like to give you a flavour of the type of regulator we are.
We are an economic regulator. Our approach will be firmly grounded in the principles of competition regulation. Making markets work better will be core. Economic regulation is largely new to financial services, but it is not new to utility industries such as energy, water, rail, gas and telecoms.
We are an evidence-based regulator. We will take action where there is evidence we need to do so, and in a proportionate manner. We will initiate our own investigations where we have concerns or where we receive complaints. Where appropriate and proportionate, we will take action.
We will design a regulatory framework that promotes behavioural change by industry. It is industry that has the experience, expertise and resource to develop new solutions and ways of working, and to deliver them. It is therefore important that industry finds these solutions and delivers them.
We will hold industry to account for delivery. And if industry fails to respond, we will take swift action.
We will be a collaborative regulator. Both with the other regulators that operate in the payments space, notably the Bank of England, Financial Conduct Authority and CMA, and with industry and users. And we will work within the context of European payments
Areas of focus
We are refining our regulatory approach as I speak. And we will release our consultation paper in November. It will be wide ranging, setting out policy proposals across a broad range of issues.
Given our engagement to date, it will come as no surprise that our key areas of focus are governance, access, infrastructure, innovation and more generally, the appropriate boundaries for collaboration and competition.
Our governance workstream is examining such issues as who makes decisions and how different stakeholders are represented.
On access, we are looking at the cost, choice and quality of access to payment systems, the access experience and contractual issues.
On infrastructure, we are looking at issues around competition in infrastructure provision and the function infrastructure plays.
On innovation, we are looking at how to ensure the industry is proactive in using its skills and expertise to identify and meet consumer needs, and doing so in a timely manner.
Our consultation paper, which we will publish in November, will provide much more detail on all of these issues and our proposed options for addressing them.
The consultation process will last eight weeks.
We will be hosting an event on 9 December to bring the paper to life. It will be an opportunity to hear more about our proposals and reasoning, and an opportunity for some initial Q&A. I urge you all to respond to the consultation. No-one has a monopoly on ideas. We are looking to address complicated issues and it is important that we get it right.
Once we have had time to consider the consultation responses , we will look to release our final policy statement before we become fully operational on 1 April.
We recognise that this is an ambitious timetable. With your help we have already made significant progress. And with your continued input, I am confident we will be ready to hit the ground running on 1 April.