Hannah Nixon's keynote speech at the BBA Future of Payments Conference 2016

13/10/2016

Speech by Hannah Nixon, managing director of the PSR, at the British Bankers' Association Future of Payments Conference on 13 October 2016 in London. 

This is the text of the speech as drafted and may differ from the delivered version.


Good morning.

It’s a pleasure to be able to deliver this keynote speech today and I extend my thanks to the British Bankers' Association for inviting me here.

Today is the third time I’ve accepted an invitation to deliver a keynote speech at the Future of Payments conference – this is my hatrick!

I am hopeful that this speech will be less The Good, the Bad and the Ugly, and more The Three Tenors.

Now don’t panic; this won’t be a speech delivered in song and I’m certainly not going to break into Nessun Dorma! But I hope that what I say here today is in tune with your own views on the PSR's work and where the industry is heading.

Each time I’ve spoken here, I’ve been clear about what we at the Payment Systems Regulator are seeking to achieve. We want to see reliable, secure, fast and agile payment systems that work as best they can for all those that use them. And that we drive towards this by promoting competition and innovation where appropriate.

Everything we do at the PSR – and everything we have done since we first started engaging with you all in 2014 -  is focused on achieving that goal.

But that does not necessarily mean being active and intervening for the sake of regulating – it’s about having a heightened level of awareness to know when to step in and ensure that the right action is taken, and when to let the market deliver on its own.

So this morning, I thought:

  • I’d talk a little about ensuring innovation really benefits consumers, and delivering on collaborative initiatives.
  • And then look at a couple of big issues facing payments with respect to innovation – ensuring innovation benefits consumers and delivering on collaborative initiatives.

The stock take

So where are we now and what have we achieved?

Well, as many of you will recall, when we were setting up as a regulator, one of the first things we did was to reach out to consumers, users and industry to understand their concerns and perspectives.

That led us to focus on three key themes:

  • Ensuring payment systems do not get in the way of retail banking competition, and competition more widely.
  • Considering the structure of the market, in particular examining whether the ownership of infrastructure in interbank systems is getting in the way of competition and/or innovation.
  • Speeding up innovation at the centre of payments where collaboration is required.

And I'm pleased to say that we've made a lot of progress on each of these areas, so the time is right for a stock take.

Ensuring payment systems don’t get in the way of competition is basically about improving access: making sure those who need to access payment systems can do so in a timely and efficient manner and, to the extent possible, have choice in the way they obtain that access.

We’ve had a real focus on making direct access work more effectively – the time to connect has dropped by as much as half, the cost has come down and the new ‘aggregator’ or ‘direct technical access’ model has opened up direct access as an option for a larger number of firms.

And we are seeing the results, with three PSPs having become direct participants so far this year, and at least six or more expected by the end of next year. We have also worked closely with the Bank of England in their RTGS review, which has resulted in plans to open up settlement accounts (and therefore direct access) to non-bank PSPs.

We’ve completed an in-depth review of indirect access, which concluded that competition is producing some good outcomes. The concerns that we did find around choice, quality and switching are likely to be addressed by a number of current and recent developments in the market, and our wider work on access.

Access will always be a priority area of work for the PSR, but we have already seen significant progress. The cost and time to connect is falling, and the choice of access options is opening up. We will continue to monitor and drive progress, and work to make sure access to payment systems is not a barrier to competition.

In terms of the concerns around market structure, our market review of the ownership and competitiveness of infrastructure provision highlighted the need for intervention.

We found that there is no effective competition for the provision of UK payments infrastructure for Bacs, FPS and LINK. After analysing the effect of the ownership and control of VocaLink by the four largest providers, we also found that this impeded competition.

We have therefore proposed remedies to require competitive procurement, address the use of bespoke messaging standards and change the ownership of VocaLink. We are however, mindful that the proposed takeover of VocaLink by Mastercard could address the current ownership arrangements, and look forward to seeing some positive outcomes from the potential divestment.

Then onto our third focus – speeding up the pace of collaborative innovation. Our approach here has been to establish the Payments Strategy Forum.  The Forum is specifically designed to harness the resource and expertise of industry in the widest sense – from end consumers to big banks – to drive forward innovation where collabo