In this piece, Kate Fitzgerald, our Head of Policy, explores the considerations for a sustainable pricing model for account-to-account retail transactions.
In our previous blogs, we’ve explored some of the barriers to account-to-account retail payments becoming a viable choice. We’ve discussed how overcoming these barriers payments could increase the payment options for retailers – and change the way we buy things in the future. Increased choice should create greater competition in retail payments, leading to more innovation, lower prices and improved quality in services.
In this blog, we consider the part competitive pricing plays in enabling account-to-account retail transactions.
All the parties involved with an account-to-account retail payment need to be able to recover their associated costs. This includes the banks, payment initiation service providers (PISPs), the provider of the central infrastructure and the payment system operator. It may also include any intermediary parties such as payment facilitators.
All these parties incur costs to initiate or process account-to-account payments. Without sufficient financial compensation or regulatory intervention, the parties may not offer account-to-account payments or invest in new and existing account-to-account products.
Retailers will need to have a reason to adopt account-to-account payments, and in sufficient numbers to realise the benefits of network effects. The fees charged for them to use account-to-account payments must therefore be competitive with the charges they face for other types of payments – notably cards and cash.
The challenge is therefore to identity a commercial model that results in prices that are sufficient to provide commercial opportunities for the providers of payment services to innovate, compete and invest in the continued operation and development of account-to-account retail transactions, as well as being competitive with other forms of payments used by retailers.
As part of this, we have asked the SWG to propose how each party in the value chain for account-to-account retail payments should charge for its services, what this charge should be for, weighing up the risks, benefits, and trade-offs between different models. Where appropriate, we expect it to let competitive forces establish prices.
We expect the SWG to consider commercial and regulatory models which are different to those used in retail payments today. Replicating the current card interchange fee for account-to-account may not deliver better outcomes for either the retailer or the consumer. With some commercial models, A2A retail transactions may not need an interchange fee at all.
The SWG may consider that regulatory intervention by the PSR is the answer in some cases; we expect it to propose what this would look like. For example, we could set specific charges, or direct some participants to provide certain services. However, the PSR will make the ultimate decision on regulatory intervention. taking into consideration the views provided by the SWG as well as by the JROC.
There’s clearly a lot of thinking and work to be done to unlock the potential of account-to-account retail transactions. We’re looking forward to working with our stakeholders to identify the challenges and find a way forward for a wider choice of payment options.
If you’d like to tell us how pricing and charging approaches can help unlock account to account retail payments, please contact us at A2A@psr.org.uk