Theme 2: Competition
What we want to achieve
The PSR is working on defining its future strategy. In July, we asked for your input into the ‘innovation and future payment methods’ theme, to which you can still contribute. We’re now asking for input on our second theme, competition.
The PSR believes that effective competition at all levels of the supply chain can protect people and businesses, with focused economic regulation acting where competition is not enough.
But what role does the PSR play to ensure that competition is effective at all levels of the payments chain? And when should we look to intervene? We want your views.
We’ve published a specific set of questions, along with a series of related content pieces to stimulate thinking and debate.
Where we are now
As the economic regulator for the payment systems industry, competition is at the heart of what we do. Promoting effective competition in the market for payment systems and services is one of our three statutory objectives.
Competition creates a rivalry between suppliers of comparable goods and services, which can encourage lower prices, higher quality and greater choice for consumers. In order to be successful, suppliers will have to make their product more attractive than their competitors’. They can do so in a number of ways. They can undercut in price, enhance the quality of the product or choose to innovate in order to set themselves apart. Ultimately, they need to understand what it is consumers want, and provide it.
Where competition in payments is effective, it helps everyone pay for the things they need in ways that work for them, now and in the future.
Competition often happens organically. When products and services are attractive to consumers, more businesses will seek to sell them. But sometimes regulators have to lend a hand. One supplier can grow substantially, making it difficult for others to either enter the market or to compete in it effectively. Or there can be barriers like a lack of information for consumers, which prevents them identifying or taking up good offers.
For example, we’ve looked at competition issues through our market reviews; most recently around the card acquiring services market. We’ve introduced competitive procurement processes for payments infrastructure through our Specific Directions 2, 3 and 4, and issued General Directions 2 and 3 which improve access to payment systems for payment service providers. We continue to use our concurrent powers under the Competition Act to investigate potentially anti-competitive behaviour. And earlier this year, we also sought input from our stakeholders on potential innovation and competition issues in the New Payments Architecture. All of these actions were aimed at stimulating and encouraging competition that benefits us all.
But we also know that competition on its own doesn’t always deliver the best outcomes for everyone. Sometimes regulators need to step in, for example to set the minimum standards that companies must meet so that consumers have security and confidence in what they’re buying, or to facilitate constructive collaboration where it might not naturally happen in a competitive market.
That’s why we’ve been working to protect payment system users from Authorised Push Payment (APP) scams. The incentives brought about by competition alone did not provide enough protection for consumers, and the solution required collaboration that would not have happened without regulatory intervention. For example, that's why we issued Specific Direction 10 in August 2019, instructing members of the UK’s six largest banking groups to implement Confirmation of Payee (CoP). This means that now, in 95% of cases where a new payee is set up by a customer of one of those banks, the customer will benefit from the protections of CoP. The successful implementation of CoP across the directed parties has provided a new, added layer of protection for consumers, but our work doesn’t stop there. We will continue to monitor the impact of CoP on fraud prevention to assess what further action may be required.
Ultimately, effective competition at all levels of the supply chain can protect people and businesses, with regulatory intervention needed where competition alone is not enough. So now we’re looking at how we should approach our competition objective in the future, and we want to know what you think about these questions:
- Is there currently effective competition at all levels of the supply chain in payments? If not, where could there be more and why?
- Is competition possible and desirable at all levels of the supply chain? Are there any limits to competition?
- Is competition currently providing effective benefits for consumers? Is it succeeding in keeping downward pressure on fees, and promoting innovation and choice? Why (not)? Is it benefitting all consumers equally?
- Who benefits from increased competition? Are consumers always sufficiently protected by adequate levels of competition, e.g. protection from fraud? If not, how should the PSR intervene when it identifies that competition alone is not providing the level of protection that is needed?
- Where do you see the need for more competition in the market? What do you think the benefit would be for increased competition in this area?
- Would the increased ability for consumers and/or merchants to switch between different payment methods make the UK payments sector more competitive? Why (not)?
- Should innovation be promoted as a tool to increase competition? Do you think Open Banking is a good example of this?
At this stage we are not necessarily looking for fully fledged submissions. We will be consulting on our full draft Strategy early next year. For now we want to stimulate debate between everyone who wishes to take part. We are doing this so that as many views, concerns and visions for the payments industry as possible feed into the development of our strategy.
If you want to contribute, your feedback can be shared informally, on social media, by emailing firstname.lastname@example.org, through more formal mediums such as letters, or simply by reaching out to us on 03004563677 and we’ll be happy to arrange a call back.
We are also organising online discussion webinars. More information on these and how to take part will follow shortly. If you are not on our mailing list and want to be informed on these and other updates around the PSR’s strategy, subscribe to our updates by emailing email@example.com.