This is the text of the speech as drafted and may differ from the delivered version. This speech was delivered at Sibos, London, 24 September 2019.
Thank you, Russell, for that introduction. Thank you for the invitation to speak here today, and for organising what promises to be an engaging overview of UK’s payments.
For those that don’t know me, I’m Chris Hemsley, and I’m the Managing Director of the Payment Systems Regulator.
The PSR is the UK’s independent regulator of payment systems, and – put simply – our role is to support innovation and improve competition in payments. But also to protect users of payment systems – including promoting a good choice of how to pay which meets the needs of different people. And, of course, payment systems that are resilient and reliable.
Innovation, competition and protecting people – themes I will be returning to.
This is a really exciting time to be involved in the world of payments. The speed of change in our sector is breakneck!
Here in the UK, digital payments are growing fast. According to the 2018 World Payments Report, the UK is one of the top 10 non-cash payment markets in the world. At the PSR we are acutely conscious that we regulate a sector that processed more than 90 trillion pounds worth of transactions last year. This is big stuff!
And the rapid evolution of digital payments and markets, is transforming both our lives as consumers and how our economies work.
Personally, I am particularly excited to be speaking to you within a month of being confirmed as the new MD of the PSR. Today is a great opportunity to give you my perspective on some of the key challenges and opportunities in UK payments.
The PSR’s work in a wider context
Given the pace of change, there are many transformation themes I could speak about. For today I want to focus on two in particular – and they are two that are very important priorities for the PSR:
- First – how the rapid shift to digital payments interacts with the role of cash in our economy.
- And second – the fundamental redesign of the UK’s interbank payments architecture, so it is fit for purpose to meet the future needs of the UK’s digital economy.
Now, at this point I would like to put down a marker. I am going to talk to you about the PSR’s work in these areas – but these are major, economy-wide themes and we need to work closely with others to address them.
Indeed, you will shortly hear about the related work of the Bank of England and about the UK’s leading-edge approach to Open Banking. While Paul and Natalie will no doubt build on some of the things I am about to discuss.
Access to Cash
So, with the scene set, I would like to start with the topic of cash; and I know this can be an emotive one.
It may also seem a little odd that I am going to talk so much about cash at an event focused on digital payments. But, one part of realising the opportunities of digital payments – and our role in protecting people – is ensuring that everyone benefits and we do not leave anyone behind.
It will be no surprise to anyone here that the UK economy is moving to a place where cash plays a smaller role. What might be a surprise to some of you is the pace at which that change is happening.
This means we need to understand and address the impact this has on those who rely on cash.
As this is Sibos, I’m betting that most of you used digital payment methods to pay for your morning coffee or travel here today. From contactless to wearable technology – the convenience of these payment methods is ensuring rapid take-up.
The fact that cash use is in decline is not in question. Ten years ago, cash accounted for 60% of all payments. Today it is less than 30%, and in ten years forecasts suggest it will be below 10%.
This is a big shift.
Our approach at the PSR is based on our view that everyone should have a good choice of how to make payments in ways that work well for them.
And not everyone wants to or – indeed – can choose digital payments. Even for those who want to choose digital methods, for a number of reasons, we are not there yet.
To pick just one – Ofcom currently estimates that around 12% of adults in the UK suffer from ‘digital exclusion’, and our consumer research highlighted that 9% of survey respondents did not own a laptop, desktop, tablet or smartphone.
So digital payments do not yet meet everyone’s needs. This means cash still has an important role to play and our work needs to protect people who cannot or do not feel able to adopt digital payments.
Delivering on this requires more than just the PSR – which is why we very much welcomed the establishment of the Joint Authorities Cash Strategy Group – JACS for short – earlier this year. JACS brings together the PSR, the Financial Conduct Authority, the Bank of England and the Treasury to build on the existing collaboration across the regulators.
Under this umbrella group, the PSR is focusing on some key areas where we can help make a difference.
Protecting access to ATMs
The first of these is all about ATMs. While cash use has reduced, 80% of us still use it every week, and most of that cash (80% or so) gets into the hands of consumers from an ATM. And consumers that do want to access cash have told us that free-to-use ATMs are very much their preferred means to do so.
The immediate challenge here – as the decline in cash usage puts pressure on ATM providers – is protecting the geographic spread of free-to-use ATMs so consumers can continue to access the cash they need and want in ways they find convenient.
This is why we used our powers to ensure LINK met its commitment to protect the geographic spread of free-to-use ATMs. This was an important step by the PSR and by LINK, which now acts to protect free-to-use ATMs that are more than one kilometre from a suitable alternative. We continue to closely monitor how this is working on the ground.
Cash access over the longer-term
But we are very conscious that this is a short term measure. It can’t be an enduring solution, not least because it’s static and doesn’t take into account how the needs of consumers and local communities for access to cash may change over time, particularly as cash usage continues to decline.
This is why we prompted discussions on whether there should be reforms to the LINK interchange fee structure and are keen to explore how community needs can be reflected in decisions on where ATMs are located.
Which brings me to one area where there is a real opportunity to act now to protect those who otherwise risk being left behind in the transition to digital payments.
To do this properly requires good local knowledge of the issues facing communities and what might help.
This points to the need to inject a local, community voice into the provision of access to cash. I am very pleased to see various players already starting to take steps in this direction.
- LINK has announced a pilot scheme that involves installing ATMs in response to community requests via local MPs.
- And UK Finance has committed to developing an approach to help communities identify and report gaps in cash provision.
A good start; and more work is underway. But we need this to go further.
There is a very real opportunity here to build a comprehensive community engagement scheme that would apply throughout the UK and would allow local communities to raise problems with access to cash.
This would allow them to request support and assistance to resolve those problems – whether the solution is ATMs or other routes to cash.
Ideally, this should be a one stop shop, that is widely promoted and easy to access and use.
There would also need to be a clear description of the types of problems we are seeking to fix. The answer cannot be that ATMs should be installed everywhere. But, we know that the impacts of not having access to cash are worse in areas of social deprivation, in remote towns and where digital payments do not work well. These considerations – alongside others – can guide decision-making so that action matches where there is the greatest need.
I am keen to support progress here, and have been talking to LINK and UK Finance about their emerging proposals. Looking ahead, we have a stakeholder roundtable event next month where we will be discussing more about consumer outcomes, community engagement and how we can make access to cash via routes other than ATMs more acceptable to consumers.
The New Payments Architecture
I want to move on now to the second of the two big transformations I mentioned: the renewal of virtually all of the infrastructure underpinning the UK’s interbank payments.
A large part of this is the New Payments Architecture, or NPA for short, which Pay.UK must deliver over the next few years.
Done well, this has the potential to future-proof the UK’s payments landscape by delivering a resilient, robust architecture that supports innovation and greater competition in overlay services. Overlay services that will benefit real people when they choose how to make their payments.
This is a big job. And a successful outcome depends upon bringing together a number of moving parts.
First, the tender for the NPA needs to be effective in terms of establishing a good design concept. Competition in that tender phase offers the potential to provide ideas about the best design and – of course – helps keep the overall cost down.
Second, we want to see a robust contract for delivery and operation of the infrastructure. This will need to support fair access to the systems and ensure that the company providing the infrastructure does not also enjoy an unfair advantage in other, related markets.
And, third, we will need high quality governance arrangements for the new payment system. Allowing rules to be amended in light of experience and as the demands placed on the system change over time.
And this is where the PSR comes in. We are engaged in all of these aspects of the delivery of the NPA – working closely alongside the Bank of England.
I see our role as critical to ensuring that these pieces fit together and that decisions taken now work towards a resilient, competitive and innovative inter-bank payment system. Indeed, the PSR – as an independent regulator working only on payment systems – provides focus on these issues, keeps an eye on the longer-term implications of decisions, and can provide consistency of approach over time.
As part of this, we are also working hard to build on our existing approach to promoting access and competition, ensuring that our regulation is fit for purpose when the NPA is delivered. Again, supporting competition and innovation. So that future users of the payment systems are protected.
Other PSR work
As I said at the beginning, I wanted to concentrate today on the two big transformations – cash and the NPA – but there is a lot more going on in the payments landscape and at the PSR.
Indeed, I haven’t had time to talk about: our work that has supported record numbers of PSPs connecting to our interbank systems; our work on competition in the card acquiring market; our first competition act case; or our work to protect people from fraud.
You’ll have to ask me about those another time - I’m around all week.
As I said at the beginning – this is a fast-moving sector with an exciting future. And I’m excited to be taking up the reins at the PSR as we head into that future.
I have focused today on the two major transformations that are clear priorities for the PSR now. But you will all be acutely aware of the potential for another wave of transformations coming down the track – how will crypto currencies impact the payments landscape? How will Open Banking transform competition? And what is the new technological disruption that we haven’t even imagined yet?
The PSR has a vital role to play in ensuring that the UK’s payment landscape is competitive, supports innovation and – fundamentally – benefits people and businesses.
And I look forward to working with you all to ensure we get these transitions right.