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New report shines a light on the supply of indirect access to payment systems

Published 10 03 2016
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Press release

A report published today by the Payment Systems Regulator (PSR) has revealed that work to open up access to payment systems is generating increasingly positive results.

Although there are still some concerns about the supply of indirect access, the industry is making changes that the PSR expects will address these issues.

The PSR’s report into competition in the supply of indirect access to payment systems is part of its wider programme of work to promote better choice in access services, so that banks, building societies and other payment service providers have a real choice between direct and indirect access. Indeed, nine banks are expected to secure direct access in the coming year.

Having access is vital for these organisations to move money between accounts, and is therefore a key enabler of competition and innovation in both the payments and banking sectors. Indirect access – the ability to send and receive payments through a third party, such as another bank – is just one way in which smaller banks, building societies and other payment service providers can get access to payment systems.

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

“Since we became operational a year ago, a key area of focus for us has been the importance of increasing access to payment systems. Having fair and open access goes hand in hand with having a vibrant and competitive economy.

“As this report shows, progress has been good and we are seeing some positive outcomes across the payments industry. We are opening up access so more challenger banks and building societies have a real choice between direct and indirect access, and we expect a number of them to exercise that choice in the coming year.”

The specific concerns the PSR raises in the interim report include:

  • Industry responses to financial crime regulation, aimed at preventing money laundering and terrorist financing, have meant that some indirect access providers are less willing to offer access to smaller payment service providers such as money remitters. As a result these companies have a limited choice of indirect access provider.
  • The PSR is also concerned about the ability of current technical solutions for real-time payments to meet the required quality of service. This may limit the ability of challenger banks and other large payment providers to compete in related markets, such as retail banking.
  • Banks, building societies and other payment providers face barriers to switching indirect access providers, which reduces competitive pressure and prevents them from securing the best possible price and quality of service.

While the PSR is clear that these issues need to be addressed, its report identifies a number of current and anticipated developments across the industry that should alleviate concerns and help deliver widespread access for banks, building societies and other payment service providers. These include:

  • Market entry and expansion: The PSR is aware of at least four organisations that are planning to start offering indirect access, and two that are expanding their current services, bringing more choice to organisations requiring these services. Recent announcements from the industry serve as good examples of this.(2)
  • Reviews of financial crime regulation: There are at least six reviews underway or recently concluded which may affect the way financial crime regulation applies in the UK and internationally. In the UK, the Financial Conduct Authority (FCA) has responded to de-risking by clarifying the requirements for banks to manage financial crime risks. It has also commissioned research to gather evidence about the nature, scale and causes of these risks and plans to publish a report shortly. These various reviews are aimed at improving the transparency, clarity and effectiveness of the UK’s anti-money laundering and counter terrorist financing framework.(3)
  • Improved access options: Alternative access models for interbank payment systems are emerging, including the development of aggregator arrangements for the Faster Payments Scheme (FPS).

In its interim report the PSR has proposed that it will support these developments rather than take immediate regulatory action. However, if its concerns are not sufficiently addressed over the next 12 months it will take further action.

Hannah Nixon continued:

“While we have identified some specific concerns, the industry is making good headway and numerous developments have the potential to address the problems we are seeing. At this stage we do not feel that further intervention is the best course of action.

“Our role is to support the industry by achieving our statutory objectives, and doing so without regulatory intervention is our preferred route. In this case we have chosen to support the industry in taking its own steps to resolve the current issues.”

What next?

Today’s interim report is now open for consultation, the report can be found here. The PSR’s proposals will have an impact on the payments landscape, so we are encouraging feedback to ensure that the market review delivers the changes that are needed in a balanced way. The consultation will remain open until 5 May 2016 and the final report is expected to be published in the summer 2016.

Notes to editors

  1. The PSR gathered evidence and views from more than 80 stakeholders – including indirect access providers, payment service providers, operators, fintechs and trade associations – as well as conducting desk research and commissioning an international comparisons study.
  2. Example 1: In January, Raphaels Bank announced that it would be joining the Faster Payments Scheme. As a member of the Faster Payments Scheme, Raphaels Bank will be able to provide other payment service providers with access to the UK’s core payments infrastructure. Example 2: Bottomline Technologies (NASDAQ:EPAY), a leading provider of payment, invoice, and digital banking solutions, launched the Direct FPS Service, a new Faster Payments gateway solution that significantly lowers the barriers and costs to real-time payments for participants. Example 3: Faster Payments has launched a programme of work aimed at providing information on the access options available to join Faster Payments either directly or indirectly (www.fasterpayments.org.uk).
  3. The FCA’s response to de-risking and the clarification around the requirements for banks when managing financial crime risks can be found here.
  4. As we set out in the terms of reference for the review, we are focusing on indirect access to the regulated interbank payment systems within the scope of the review (Bacs, CHAPS, Faster Payments, and Cheque and Credit).
  5. The PSR was incorporated on 1 April 2014 and became fully operational on 1 April 2015.
  6. 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.
  7. The PSR is the regulator and concurrent competition authority for payment systems in the UK and all participants in payment systems (payment service providers, operators and infrastructure providers to those payment systems).
  8. The PSR website.