The innovation challenge


Speech by Hannah Nixon, managing director of the PSR, at the Payments Innovation Conference on 29 June 2015 in London.

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

Good morning and thank you for inviting me to speak here today.

Innovation is certainly a hot topic in payments right now. We know the way people are spending, moving and investing their money is changing, and the rapid advances in technology mean we are probably seeing the fastest rate of change in payments for decades. 

If I was to ask you to word-associate around the term ‘regulation’ I suspect we’d hear words like ‘control’, ‘rules’, ‘ compliance’, and so forth. 

I would be quite surprised if many of you said ‘innovation’. Financial regulators have traditionally not been charged with this responsibility.

Yet promoting innovation is one of the Payment System Regulator’s three core objectives. It sits alongside, and mutually reinforces, our other two: promoting competition and protecting the interests of the people and businesses that use payment systems. 

Today’s event is of course all about innovation so, in my time here today, I’d like to set out: 

  • why we see promoting innovation as important, 
  • the role we play as the regulator and how we intend to deliver that role, 
  • and how we see industry playing its part.

And in doing so I want to get you all thinking about what innovation looks like when it works well, and how - ultimately – we can drive better outcomes for consumers.

Why innovation is important 

But first, to understand why innovation is important, we must understand why it’s needed.

We don’t just want innovation for innovation’s sake.  We want it because it can drive better outcomes for society.

Earlier this year Payments UK said that digital is ahead of cash when it comes to paying. And, in the same vein, the British Bankers Association recently confirmed that mobile is now the most popular way to bank. 

Times are changing.

Industry must innovate to keep pace. 

Well-documented IT problems just recently are a reminder about the need for continuous improvement in the technology space, and innovation is part of that.

So the industry must also innovate to maintain high standards. 

But what happens if we fail to maintain these standards or we lose pace?

Rather than being part of the curve, we fall behind it. And that means lots of frustrated people finding making a payment a thankless task. Worse, in our panic to put things right, we may rush solutions that are not fit for purpose. 

Innovation that delivers complex and interesting products that consumers don’t want is not what we’re looking for. Neither do we want innovation that undermines the integrity of the payments systems.

Equally, a new, innovative, way of paying may tick all the boxes, but we must be aware of the social effects of innovation. Who will get left behind? And if so, what can be done to make sure we have financial inclusion?

So what we want is innovation that can drive better outcomes for all consumers. New products, greater choice, lower prices, higher quality. 

But in striving to be good, we must also know what ‘bad’ looks like. We must be alive to the risks.

Credit default swaps and interest rate swaps are both innovations that came about in tough market conditions and then grew and grew in popularity. Both were receiv