From paper to reality
Speech by Hannah Nixon, managing director of the PSR, at the British Bankers' Association The Future of Payments Conference on 24 September 2015 in London.
This is the text of the speech as drafted and may differ from the delivered version.
I am delighted to be your keynote speaker today and my thanks to the British Bankers’ Association for the invitation.
Incidentally I also had the honour of giving the keynote speech at last year’s Future of Payments conference, which took place exactly the same day – 24 September.
Such a neat coincidence it is far too good an opportunity for me to pass up so I’m going use this anniversary as a convenient way of making some observations on the last 365 days.
But, this is a conference all about the future, so more than anything I want to focus on what happens next.
Three hundred and sixty five
Last year was a different time for the PSR. In September 2014 we were at a more gestational stage, and all eyes were on us.
We were busy working our way through stacks of stakeholder feedback and research to understand what we needed to do to deliver our objectives.
What approach should we take? What policies would make a real difference? What could we learn from the industry and other regulators?
It was a time of reflection and discussion. It resulted first in a Consultation Paper and, ultimately, our Policy Statement – which confirmed the approach we are using today.
Fundamentally, we’re focused on developing and protecting competitive markets where they can provide the conditions where innovation thrives and they deliver for consumers. And where competitive markets can’t achieve that, we will intervene proportionately and in an evidence-based way to drive better outcomes.
So a year has passed and we now have a regulatory framework that is already helping drive up performance in payments.
Our framework is hardwiring the core qualities we are looking for into the way you do business.
We’ve put in place a package of measures to improve access to payment systems, ensure payment systems are focused on their users and to speed up the pace of innovation. These include requirements for clear and proportionate access terms and on boarding processes; requirements to ensure all users are appropriately represented in decision making; requirements to improve information provision in the sponsor bank market; and, most recently, the launch of the Payment Strategy Forum, which is working to drive innovation where industry collaboration is needed.
Encouragingly, we’re already beginning to see changes in the industry. Changes that should improve the way that payments systems work and ultimately benefit all who use them. For example:
- It’s clear that payment systems are going up the agenda. There’s still some way to go. But the banks, who ultimately own them, are beginning to see payment systems as the strategic assets they are; not simply as something that can be left alone as long as they don’t fail.
- The process for joining a payment system directly is becoming clearer and easier. We’re hearing that the time to connect is roughly halving from 12-18 months to around 6-9 months.
- We’re expecting to see a number of new members of both interbank and card schemes next year.
- There’s much greater transparency of information in the sponsor bank market now, and there are signs that new providers are looking to enter that market.
- Innovation at the consumer facing end of the sector continues apace. Barely a week goes by without a new announcement.
So for numerous reasons, many more in fact than I have listed above, I view the achievements of the past year with great positivity.
The next challenge
But now we are in a new phase now, and with that comes new challenges.
We’ve developed a policy framework, consulted on it, checked it and implemented it. We will keep our regulatory approach under review to make sure it remains fit for purpose. But the broad architecture of our regulation is in place.
The focus now shifts from regulator to regulated. The spotlight is on you.
How will industry continue to respond to this new regulation? What further changes will we see? What are the newly-regulated firms saying?
Well, the good news is, for my part: I’m encouraged by what I see. And what I see is progress.
The people I meet every week agree that change was needed and think we have the right approach. We are enjoying productive relationships with those we regulate and we have constructive and meaningful discussions with the wider payments family. Indeed the payments family is bigger and wider than ever.
But in this new phase it needs to be more than that. It needs to be more than talk about the progress made, it needs to be more and sustained change that builds on the early progress we’ve seen. We’ve seen a good start, but it just a start.
What I want to see, and what the people and businesses that use payment systems want to see, is a collective taking of responsibility to drive payments forward – not just now, as a one off, but on an ongoing basis.
A sporting analogy
Now at this point, I would like to digress for a moment.
I have two boys, both of them sports-mad. Like most boys their age, they play as many sports as possible and myself and my husband provide a free taxi service on a seemingly never-ending basis.
Swimming, tennis, cycling, football, rugby, hockey… you name it - they do it.
Yesterday, the 23rd September, was an auspicious day for those that love sport.
It was the 15 year anniversary of Sir Steve Redgrave winning his fifth gold medal at a five consecutive Olympics.
Today, the 24th September, marks a more unsavoury sporting anniversary.
Would anybody in the audience care to take a guess at the anniversary I’m talking about?
27 years ago, in Seoul, South Korea, Ben Johnson won the 100m sprint at the 1988 Olympics.
I’m sure we all know the story: Johnson blew the competition away in a record breaking time of 9.79 seconds. He would only hold the title for a couple of days, and was quickly stripped of his gold after testing positive for anabolic steroids.
Why do I bring this up? What does this have to do with payments?
Steve Redgrave’s ambition and determination kept him, through 16 years of early morning starts and gruelling training routines, at the top of his game. He wavered from time to time – we all remember his ‘shoot me if you see me go near a boat’ comment – but he stayed the course and won.
And how he won; Steve Redgrave is widely regarded as one of the finest sportsmen the world has ever seen.
True success is built on having the right mindset: a focus on planning, hard work and determination, and a little bit of luck.
It doesn’t matter whether it’s sprinting, rowing, or economic regulation – the recipe for success is the same. There are no shortcuts or quick fixes.
It’s what I tell my boys, and it’s a lesson we should also bear in mind.
Which brings me back to the PSR.
Our role is to drive competition and innovation in payment systems to create a better payments industry for everyone. We’re being naive if we think we can do this overnight. There is a long and difficult road ahead of us and we face our own gruelling training regime before we get there.
So how do we apply the sporting analogy? How is this relevant to payments?
The situation now
The situation today, as I see it, is that we have a well-established and resilient payments industry. It does its job very well.
You go to a cash machine: money comes out of the wall.
You tap your card on the way in and out of the Tube: the correct fare is debited from your account.
You want to transfer money to friends, or family, or somebody from whom you are buying a house: it’s the same story.
Quick and simple, and 99.9% of the time – reliable.
Of course, sometimes there are problems. But that’s no different from any other industry.
These are essential services that make our lives easier and we can take for granted. And I think that’s a good thing.
But being well-established and reliable is not enough. The very reason the PSR was created was because the pace of change was too slow; there needed to be a new paradigm.
But what paradigm? What is the future?
Fundamentally, we want to see payment systems that are competitive, where they can be, that help drive and support competition between payment service providers, that are innovative across the piece – and thereby that are ultimately working in the best interests of service users.
For that to happen, we need a change in mindset, a change in culture. And it needs to be a sustained change in culture. There are no short cuts.
We want payment systems to be seen as the strategic asset they are, not just behind the scenes systems that can be left alone as long as they don’t fail. We want to have an industry that leads its own destiny, working with users to meet their needs and constantly striving to improve. We don’t want an industry that waits for its regulator to tell it precisely what to do or one that adopts a blind compliance culture.
We could be very prescriptive. We have strong powers to take enforcement action and to stop anti-competitive behaviour. But our aim is to create the right culture, the right environment so that the payments industry can rise to the challenge itself. In that way, we will only need to take strong action occasionally.
The recently published code of conduct for providers of indirect access is a case in point.
This is a voluntary code, and while the measures are ambitious they are eminently achievable and – alongside other improvements – are paving the way for a more open future for access.
The code isn't a set of PSR rules. It's a promise from the sponsor banks to their customers to treat them better. It's about the industry stepping up,
And where industry does step up, there is less need for us to take action. Yes, we will monitor how things are going. Yes, we want to hear where there are concerns. And yes we will take action where we need to, but we will not do so for the sake of it.
But progress needs to be sustained. Where it isn't and promises are broken, we take two steps back. Trust is lessened and we will take action.
Keeping the momentum going
Most, if not all, of the measures we set out in our spring policy statement are designed to promote a better culture. But they require action by you if they're going to work.
The Payments Strategy Forum underlines the point.
The Forum is going to revolutionise the way we approach challenges that affect the entire industry, challenges that can only be overcome by working together.
It's there to put the people and organisations that use payment systems at the heart of strategy, and then to harness the expertise, knowledge and resource of industry to drive collaborative change.
Many of you will have heard me talk about the Forum before, so I don't intend to do so again at any length. But there have been some recent developments that I would like to highlight briefly.
In July, we confirmed Ruth Evans as chair of the group. Ruth is an experienced head when it comes to leading organisations that need to innovate or where collaboration between diverse stakeholders is required. And more recently we announced the remaining line-up, with 21 senior figures taking their place at the table.
Advocates for consumers, retailers, small and medium sized businesses, corporations, government are all present, As well as experienced providers of payment services, from credit unions, e-money firms and high street banks.
The Forum will create working groups made up of experts with specialist knowledge of different areas to inform its work. Payment system operators for example, are one group that will contribute in this way, and we expect there to be many more over the years.
I mention the Forum in this speech because earlier I spoke of the importance of providing the environment that encourages industry to step up and drive change. The Forum is designed to do just that. It is there to get you to drive things forward. And we will stand behind it to support and, if necessary, intervene.
And the course it will only make decisions based on the past analysis and evidence, guided by the experience and seniority of its members, it will be credible and independent in its approach.
One year on
In preparing for today's speech, I read again the comments I made exactly a year ago today. Back then I spoke of the need for an industry that "focused on the needs of service users and end customers" and "... forges new partnerships to meet the challenges of the future ".
I said that there needed to be "a real mindset change on the part of industry" and "... simply continuing as we have always done will not deliver what is needed".
A lot has happened in the last 12 months but I see no reason, just yet, to change that assessment.
If I have the honour of being able to complete a Future of Payments keynote speech hat-trick, then I look forward to being able to report back differently-that we are seeing a sustained mindset change.
Before I finish, I have one final observation.
The title of today's conference has no question mark. "The Future of Payments "is surely a question? That is why we are here, surely?
So if it is a question, what is the answer? I certainly hope one answer to that question is a changed mind set-and an industry that steps up to our expectations and requirements seriously. An industry that takes the initiative, putting service users at the heart of what they do.
A lot is at stake. But if that is the answer then we will drive real change in payments that benefits everyone.
Thank you very much and enjoy the rest of your day.