The annual ‘Access and Governance of Payment Systems’ report, which reviews the progress of the regulator’s open access programme, notes that as many as ten new providers could gain direct access to the interbank payment systems this year.
This can be expected to improve competition in payment services and high street banking and have a positive effect on the quality and range of services that consumers receive.
'Our open access programme has been a cornerstone of our work. It’s a key reason why we were established and is vital in ensuring effective competition and innovation in payment systems, which can facilitate effective competition in high street banking and payment service provision more widely.
‘Better access to payment systems can open the door for small fintech firms and challenger banks so that they can compete directly with the high street banks on a level playing field. This will not only give customers more choice, but also give them the opportunity to use a wide range of new and innovative personal banking and payment services.
‘We expect this year will be the most successful, with more challenger banks and fintech companies expected to gain either direct or more innovative ways of accessing the interbank payment systems than in any other year. They’ll also be able to do this cheaper and quicker than ever before.'
According to the PSR report, the banking and payments industry saw some groundbreaking milestones in recent months, for instance Raphaels Bank, Metro Bank, Starling Bank, ClearBank and Monzo becoming the first new joiners to Faster Payments since it launched in 2008. It also expects the entry of three new providers of indirect access to payment systems this year, ClearBank, Raphaels Bank and BFC Bank.
In addition, the report highlights how the payment systems operators have improved their processes to reduce the time and complexity of joining. The cost of getting direct access appears to be reducing. In 2015, payment service providers (PSPs) projected the upfront cost of access could be in the range of £2.5 to £4 million. Recent joiners have indicated that upfront costs for accessing the interbank payment systems are in the region of £1.2 to £2.5 million.
'We’ve both facilitated and driven change in the market to create an environment in which access can thrive, but this has also been an industry-wide effort in which many companies and organisations have played a role.
'From top to bottom, the industry’s ongoing collaboration and engagement has led to widespread competition and innovation. The operators and indirect access providers have taken steps to increase transparency of information and to engage with service-users and the Payments Strategy Forum’s recommendations on simplifying access will further reduce the time and complexity of joining and accessing payment schemes.'
Although progress has been encouraging, the PSR is pushing for a number of further improvements that it thinks are necessary to ensure fair and open access and to deliver effective competition and innovation.
One of these improvements is for the operators to finish work in developing aggregator access models1 by the end of the 2017. They should also be ready to progress applications for direct access to non-bank PSPs, in anticipation of the Bank of England amending its settlement account policy and where necessary legislative changes are made.
A factsheet to accompany the March 2017 report can be downloaded from the PSR website.
Notes to editors
1. Aggregators are typically financial technology vendors, who provide payment service providers with connectivity to the central infrastructure of a payment system. This ‘technical access’ enables those providers with insufficient volumes of their own to gain a direct access connection.
2. The PSR was incorporated on 1 April 2014 and became fully operational on 1 April 2015.
3. The PSR is the regulator and concurrent competition authority for payment systems in the UK and all participants in those payment systems (payment service providers, operators and infrastructure providers to those payment systems).
4. The PSR has three statutory objectives:
- to promote effective competition in the markets for payment systems and for services provided by those systems, including between operators, payment service providers and infrastructure providers, in the interest of service-users
- to promote the development of innovation in payment systems, in particular the infrastructure used to operate payment systems, in the interest of service-users
- to ensure that payment systems are operated and developed in a way that considers and promotes the interests of service-users