A new regulator for a new world
Speech by Hannah Nixon, managing director of the PSR, at the Digital Payments Intensive on 16 April 2015 in London.
This is the text of the speech as drafted and may differ from the delivered version.
Good morning. This is the first time I have delivered a keynote speech since the PSR launched on 1 April.
The last time I spoke at a gathering of this size, we were deep in the consultation process, writing and re-writing policy, sense-checking it and making sure it would deliver what we intended and would stand the test of time.
Now, we have a clear ambition, policy statement and work programme. And we are fully up and running.
When you leave today I’d like you to do so understanding what it is the PSR is here to do, what it is we want you to do, and – most importantly - how this will all add up to create better payment systems that work for everybody that uses them.
But before I go on, I’d like to reflect for a moment.
From shekels to smartphones
We all know that payment systems are important, that they underpin the economy. We all know that the way we pay for things is changing, and, as technology develops, the options become greater.
These things have always been true, right from the early payment systems 5000 years ago when Mesopotamian traders defined units of barley as shekels.
Times have changed, but our needs are the same. People have always demanded payment systems that really work for them. We need to make sure we have an industry that responds.
Why the PSR was created
One of the concerns we have, and indeed one of the reasons we were set up by Parliament, is because it feels like the balance has slipped a little.
Payment systems, while well established and resilient, are not necessarily being operated with the user front of mind.
It is vital that we – by which I mean both regulator and regulated – keep pace.
In fact just recently we heard that cash is to move into second place as the most popular form of payment. Digital payments have overtaken.
It’s a significant moment. Together coins and paper money have been our staple for thousands of years. This ‘changing of the guard’ shows that we are moving into a new world.
And so the PSR comes at a critical time. Whether it’s shekels or smartphone apps, the concept remains the same. We must have payment systems that work for those that use them. What has changed is the complexity of the markets they serve and the technology behind them.
This is a new world and it needs a new regulator. Today I will tell you what we have been working on at the PSR so far, and then what we want to achieve and how we intend to regulate.
So, what have we been up to?
Last April the PSR was little more than an idea, a handful of people working on ‘the PSR project’.
Fast forward 12 months and we are no longer a project; we are much much more. From a standing start we have established a brand new independent economic regulator, with a team of experts and a comprehensive set of policies and processes.
Stakeholder engagement has been a central part of our work to date, and I want to thank you for the consistently constructive and helpful input we have had from many of you here today. I certainly hope it continues.
I am immensely proud of what we have achieved. And while I may be biased, what we have achieved – in my opinion – is significant.
The next twelve months
But the real journey starts now. Now we need to turn our policy into action.
To put it simply, what the PSR wants to see is a change in mind-set in the payments industry.
The paper we published at the end of March, our policy statement, confirmed how we wanted that change to come about. At the core of our policy approach are three pillars.
These three pillars are the foundations of our work.
First, there needs to be a new and inclusive strategy setting process for those areas where collaboration is required, that has a real imperative to deliver.
We will make this happen by setting up a Payments Strategy Forum to develop a longer term vision for how payment systems should develop and identify priority areas for the industry to work together - where appropriate – and deliver this vision. I will come back to this in a minute.
Second, I want more transparency around how decisions are made, and who is making them. To that end the PSR will break open the control and governance of payment systems, challenge payment system operators to explain how they have listened to people and organisations that use payment systems, and check that operators are really taking payment systems in a direction that meets people’s needs. This will help create a level playing field for all involved.
And third, I want to improve the way people and businesses gain access to a payment system – be it directly or indirectly. This must be clearer, easier and fairer and handled in a way that fosters innovative and competitive solutions for customers using payment systems.
So back to the Forum. And I think this deserves special attention today because it stands as a significant departure from the traditional way of doing things for a regulator. That partly reflects the fact that we have a pretty unique duty for a regulator - that of promoting innovation.
We don't want innovation for innovation's sake. We want innovation where it can drive real benefits for system users and consumers.
We are also very clear that we need to distinguish between innovation that can be driven commercially by an individual entity and that innovation that can only happen collaboratively because of the significant network effects that exist in the sector.
CASS and Paym are both good examples of that type of collaborative innovation.
In the space where innovation can happen commercially, our role is to get out of the way, identify any barriers to innovation and remove them if appropriate.
In terms of innovation where collaboration is needed, one of the issues we’ve come across again and again in our discussions with people working with - and within - the industry is that the pace of change is too slow. The concept of a Forum made up of those that work in the industry, those that are users of payment systems and innovators, is designed to address that issue head on.
By setting up a new strategy setting process through the Forum, the aim is to harness the industry's skills and expertise, and to provide real focus and momentum to deliver innovation that benefits users and consumers.
We will set up the Forum. We will appoint the chair and, to begin with at least, provide the secretariat. But for the Forum to work properly, as intended, and to have credibility, it must be driven by industry itself. It must lead to tangible results for consumers and users in a timely manner.
If it doesn't, then we will step in.
An ambitious programme of work for the next 12 months
Alongside the publication of our policy statement we also published a work programme for the year ahead.
If the policy statement set out the foundations of our work, the policy work programme is the bricks and mortar. The work contained within that document will help us start forming the shape of the industry we want to see.
In it we have outlined some major pieces of work that we will begin in 2015 and if you haven’t read it yet, I would strongly recommend you do so soon.
That work programme is aimed at ensuring the industry is complying with our directions and checking whether those directions are having the desired effect. And it is about assessing what further measures we need to take to improve the way markets work and promote competition.
We will continue our two market reviews – the first on the supply of indirect access to payment systems and the second on the ownership and competitiveness of infrastructure provision – finalising the terms of reference then taking a deep dive into both areas.
And we will be undertaking a significant piece of work on card payment systems.
The work on cards reflects the fact that there are some significant changes underway that will affect how card payment systems operate in the UK - notably the introduction of the new Interchange Fee Regulation at European level.
As the likely UK regulator that takes forward implementation of the IFR in the UK, we will need to look closely at what has been agreed before moving ahead.
We recognise that this is an area that has caused some furrowed brows and you can be reassured that we are taking this responsibility very seriously. We will carry out further assessment and ensure that any decisions we take are based on solid analysis and evidence.
Our card project will also seek information about other concerns around card payment systems, such as access, transparency, governance and how the people that use card payment systems are represented in the decision making process.
We will also carry out a number of smaller exploratory projects to scope out areas where concerns have been voiced but there is little evidence to assess.
Two such projects are, first, understanding whether ATM interchange fees are a barrier to us achieving our objectives. Second, we want to understand what role – if any – the PSR might have should there be a systematic failure of a payment system and the need for consumer redress. We recognise that the presence of a new payments regulator may cause confusion for consumers and firms in the event of such a failure.
So I think it’s fair to say that we have set ourselves an ambitious programme of work for 2015/16!
And I know many of you will want to discuss this with us in person and that is why we are proposing to hold a number of roundtables so that you may come and ask us about these pieces of work.
Stepping up to the mark
The challenge now is to put all of this into action.
The spotlight is on payments – both in the UK and globally. We are the first dedicated direct regulator of payment systems in the world.
We are determined to deliver on our objectives and drive a real change in mind-set in the payments industry that ultimately benefits consumers and system users.
I know that we are asking a lot. And I’m not naïve enough to think that there weren’t groans echoing around the City when it as announced that another regulator would be set up.
But society is demanding change and we all have a responsibility to step up to the mark and deliver.
In the interests of being open and honest, I would like to tell you what you can expect of us.
As a new regulator, a major part of our first year will be to continue to develop our regulatory approach. That approach will have the following characteristics.
- We are aiming to develop and protect competitive markets and help create conditions where innovation can thrive. We will prioritise actions that have a widespread positive impact across the market and will take the approach of incentivising good outcomes rather than controlling them.
- We will regulate only where we have clear evidence that we need to do so, and where we expect the benefits of our regulation will outweigh any costs or unintended consequences. We will always endeavour to be proportionate - using either broad standards or precise rules depending on the context.
- We will take independent decisions for which we are ultimately accountable to Parliament. Those decisions will be deliberate, transparent and predictable.
- We will keep our regulation under review, monitoring the extent to which it is delivering the results we expect and remains fit for purpose on an ongoing basis. And we will make adjustments to our approach if necessary.
Some of you may have heard me say that I strongly believe that the best regulation is that which industry does not fight, but is invested in and wants to drive forward.
That is why, in return for our open approach, we expect you to be up front and honest with us.
Tell us if something is bothering you – whether it’s about us or another participant – or whether you think you’ve got a problem.
What it all adds up to
A lot can happen in a year. The PSR is living proof of that.
And the hard work starts now.
I’m often asked what it is we’re aiming for with the PSR, the changes I want to see, and what it is I want to see in a year’s time. Indeed this question came up when I was speaking to Radio 4’s Today programme on our day of launch.
The answer doesn’t change.
What I want to see is consumers and system users at the heart of what payment systems do.
Some things can happen quickly, such as making access to payments systems easier and fairer. Other things will take more time, but we need to make serious headway now.
I want to see the control of payment systems truly broken open so that everybody has a voice.
I want it to be easier for new banks and innovators to get access to the systems so they can provide more competition.
I want to see the Forum up and running and really start generating some innovative ideas and solutions.
And I want to see the mind-set of those we regulate truly changing.
It’s important that we get off on the right foot. If we are to deliver real change we can’t rest on our laurels; we have to start now and use the impetus gained from setting up a new regulator with everybody engaged and drive this agenda forward.
I am confident we can do this. The benefits are not just for users, they are for all.
Faster and fairer access. New ideas and innovations. More open and transparent conversations. Greater value for money. These are all catalysts for markets working well.
And for the man on the street, there will be new and improved ways to pay, more options, as well as the customary resilience that has been established in the UK.
Our work, alongside the work of other regulators, is helping to create a more competitive banking industry.
And so in closing this speech I would like to return to the reason I am here today.
To make this a success, I want your support and understanding of what we are trying to achieve. I want you to come with us on this journey.
Everybody at the PSR is aware that, as the first regulator focused solely on payment systems in the world, all eyes are on us. We know that we have to get it right.
But let me reassure you that we are going to do this in the right way. There will not be rules for rules’ sake; there will not be needless red tape. The actions we take will be meaningful and always – always – be based on the evidence we have gathered.
What we do will always point towards, and be focused on, our vision of payment systems that are accessible, reliable, secure and value for money.
We have been given some of the strongest powers of any UK regulator to force through the change we want to see. Should we need to use them – we will. But it is my strong hope that we will need to do so rarely. And if this turns out to be the case, it will speak volumes of the way you – the industry – has risen to the challenge.
Shekels and smartphones apps may be separated by five thousand years, but they are united by a common purpose: making payments work simply and for all.
It’s up to us to shape the payment systems of the future. As the old adage goes: “The best way to predict the future is to create it.”
What we ask of you won’t be easy and it will take time, but it will be worth it. Thank you.