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Banks should sell their stake in UK payments infrastructure to help increase innovation and competition

Published 25 02 2016
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Press release

The Payment Systems Regulator (PSR) has today published the provisional findings of its market review into the ownership and competitiveness of the infrastructure that supports the payments systems; Bacs, Faster Payments System (FPS) and LINK. The PSR is now seeking feedback on the report.

These payment systems are currently owned by a relatively small number of banks, which also control the single infrastructure provider that they rely on to process payments, ‘VocaLink’.

In the UK, VocaLink processes over 90% of salaries, more than 70% of household bills and almost all state benefits. Nearly every business and person in the UK uses its technology and last year the company processed over 11 billion transactions with a value of £6 trillion. (See notes to editors 1.)

The evidence published today indicates that the common ownership of this infrastructure provider by this small number of banks is having a negative impact on innovation and competition in the industry. As a result, the PSR is proposing that these banks sell part of their stakes in VocaLink in order to open the market and allow for more effective competition and innovation.

The interim report also shows:

  • The way operators procure payment infrastructure services prevents other potential providers from competing in the field. Therefore the PSR is proposing that a new competitive and transparent procurement process is introduced. This will be an open, independently monitored process, based on best practice. It will be used as soon as an operator’s current contract with VocaLink comes up for renewal.
  • UK payment systems communicate with the infrastructure provider using their own ‘message’ standards that are not widely used elsewhere in the market. The PSR proposes that a common messaging standard is introduced to level the playing field.

Read the full report (see notes to editors 2). To find out more about payments infrastructure and payment systems, visit the PSR website.

Hannah Nixon, Managing Director, Payment Systems Regulator, said:

"The payments industry has evolved at a steady pace, but now is the time to ask whether or not it is operating best practice. The evidence we have gathered shows that common ownership is hampering competition and the speed of innovation in the market.

"There needs to be a fundamental change in the industry to encourage new entrants to compete on service, price and innovation in an open and transparent way.

"Our proposals will increase competition and create more opportunities for challengers, fintechs and other organisations looking to enter the market. This will create the conditions for greater innovation – which is in the interests of those that use the infrastructure services directly, and the UK economy as a whole."

Why is the PSR conducting this market review?

The PSR was established with three statutory objectives: to promote competition, to support innovation across the industry, and to ensure that payments systems are operated and developed in the best interests of those that use them.

In November 2014, the PSR published a consultation paper on a new regulatory framework for payment systems in the UK. During this consultation, concerns were raised about the overlapping relationships and common ownership of the operators and the infrastructure provider for payment systems. The PSR responded by initiating this market review. The final terms of reference were published in June 2015.

What next?

The report is now open for consultation. The PSR’s proposals will have a significant impact on the payments landscape, so we are encouraging feedback to ensure that the final market review delivers the changes that are needed in a balanced way. The consultation will remain open until 21 April, 2016.

Notes to editors

  1. Source: VocaLink website
  2. The PSR gathered evidence and views from more than 70 stakeholders – including infrastructure providers, operators, PSPs (including independent ATM deployers), fintechs and associations – as well as conducting desk research and commissioning an international comparisons study.
  3. The PSR was incorporated on 1 April 2014 and became fully operational on 1 April 2015.
  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 also 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; and to ensure that payment systems are operated and developed in a way that considers and promotes the interests of service-users.
  5. 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).
  6. The PSR website.

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