Hannah Nixon's speech at the PSR's Annual Plan launch event 2017
Hannah Nixon’s speech at the launch of the PSR's Annual Plan 2017/18 event at the Barbican, London, on 29 March 2017.
This is the text of the speech as drafted and may differ from the delivered version.
Good morning to you all. Let me begin by thanking you for joining me this morning.
It gives me great pleasure to welcome you to the launch of our 2017/18 Annual Plan. We’ve been operational for two years now, and would like to share with you our key aims and a summary of anticipated activities for the year ahead.
Just as crucially, today is an opportunity for you to provide your initial views on the PSR’s forward work plan, and to feed into the strategic issues we’ll be focusing on over the coming 12 to 18 months.
Our engagement with stakeholders through the means of bilateral meetings, roundtable discussions, consultations and annual surveys, has been a crucial element in all of our endeavours to date and we want to continue to build on that going forward.
We take your views very seriously and I hope that our commitment to consultation and transparency over the last few years has demonstrated what type of regulator we want to be.
In fact, we have recently asked many of you in in this room how you think we’re performing in our independent stakeholder perception survey. We will review the full findings of this survey, together with your feedback from today, and will ensure we continue to engage with you about this over the coming weeks and months.
Last year you told us that as a new regulator, we had started off well, but you were keen to see if we'd follow through and do what we said we would. A year on, I'm pleased that early feedback from our current survey suggests that most of you agree that we have delivered, and that we've communicated with you throughout.
Conducting this survey has been an insightful exercise for us, and my team and I look forward to continuing our open discussions with you on how we can do more of what we are doing well, and improve in areas where you feel we need to do more.
In our conversations with you, you’ve told us you would like to see more face-to-face interaction with us, and today is part of that journey.
We have come in listening mode and encourage you to take time today to reflect on what we’ve done in the last two years, on what has worked well and what hasn’t, as well as on where we’re going next.
We will be making sure we follow up this event with similar conversations across the country throughout the year, the first of which will take place in the summer.
But, I wouldn’t be doing my job properly if I didn’t point out that, as a regulator, we cannot always please everyone and we wouldn’t be doing what we are supposed to, if we did.
Our focus remains on meeting our statutory objectives that sit at the heart of everything we do in order to realise our vision. That is - to make payment systems work well for the UK economy and consumers, and to inspire confidence in the use of payment services.
We recognise the importance of listening to all your views and taking your considerations on board along the way - and that’s exactly what we intend to do today and going forward.
Journey so far
When the PSR was first set up, we held a series of discussions with you to help us understand the key industry concerns and challenges, and to help us decide where best we could focus our attention.
It was your input that helped us determine how to go about doing our job as the 1st payment systems regulator in the world.
In our first two years of operation we’ve made significant progress in addressing those key issues we identified together, and we are delivering on our statutory objectives to promote competition, innovation and ensure payment systems meet end users’ needs.
First, we heard that difficulties in getting access to payment systems were getting in the way of retail banking competition and competition between payment service providers more widely. That’s why we focused heavily on opening up access to payment systems.
It’s now quicker, cheaper and easier to connect directly to the interbank payment systems. There is also more choice in ways to connect.
Earlier this month, we launched our second report on access and governance of payment systems, which has documented improvements in the provision of access in terms of choice, the time it takes to join, value, quality and level of engagement with service-users.
We’ve seen some groundbreaking access milestones in recent months. Raphaels Bank, Metro Bank, Starling Bank, ClearBank and Monzo became the first new joiners to Faster Payments since it launched in 2008, and we’re expecting this rate of progress to continue. Indeed, we expect several new direct participants across the interbank payment systems throughout this year.
We have also focused on improving indirect access. Indeed, we carried out a market review into indirect access of payment systems in order to examine whether market conditions support effective competition, focusing on choice, service quality and the ability of indirect PSPs to switch providers.
We concluded that, although competition in the supply of indirect access is producing some good outcomes, we do have concerns about the quality of access, limited choice for some payment service providers and barriers to switching.
However, we are seeing developments in the market that, combined with our own work on access, are likely to resolve a number of these issues without the need for immediate regulatory intervention. These include improved direct technical access options for indirect payment service providers; the entry of new indirect access providers into the market entry; the publication of an updated Code of Conduct setting out indirect access providers’ responsibilities; and the Payments Strategy Forum’s (the Forum) final strategy which includes provisions to simplify access to the payment systems.
Access: on-going work
So progress on access is good. But there is still more to be done and improving access will remain a focus for us.
In particular, we will be pushing for additional simplification of the entry process through the Forum and its proposal to combine the three interbank schemes to reduce the time and complexity in joining payment systems.
We also want the operators to finish their work on developing access models and solutions that facilitate the development of aggregators by the end of the year. We expect them to be ready in time to progress applications from non-bank payment service providers, in light of possible upcoming changes to the Bank of England’s settlement account policy.
We also want indirect access providers to revisit the voluntary Code of Conduct they’ve developed and consider how they can improve payment service providers’ awareness of and confidence in it. We also expect them to address outstanding quality-related issues affecting payment service providers who choose indirect access, namely: poor relationship management and short notice periods for the termination of indirect access agreements.
And, of course, as part of our efforts to monitor the effectiveness of our work, we will be reviewing our directions later in the year to ensure they remain effective and take into account the proposed consolidation of the operators of Bacs, Faster Payments and Cheque and Credit; and the implementation of PSD2. We plan to carry out a full consultation on any changes over the summer.
Second, we heard real concerns about the fact that it’s the established banks that own and control payment systems. That’s why we carried out a market review of the ownership and competitiveness of the infrastructure that supports the three main interbank payment systems - Bacs, Faster Payments Service, and Cheque and Credit Clearing.
We found that the current ownership set-up does get in the way of competition and innovation in the payments infrastructure, and we set out clear remedies to make the market work better.
In particular, we want to see the big banks divest their ownership of VocaLink, the competitive procurement of payments infrastructure going forward and a move to open international standards. We’re in the process of ensuring those things happen.
Third, we heard that the industry was slow to innovate where collaboration is needed. While there’s a lot of innovation at the consumer end, much less was happening in the behind the scenes plumbing.
That’s why we set up the Forum. Through its creation we have generated momentum for industry-led collaborative innovation in payments, giving stakeholders the voice and opportunity to engage in the future of the UK’s payments systems. We remain committed to our belief that better outcomes are produced when the industry takes ownership and collective responsibility for its own strategy.
While the Forum’s work is industry led, importantly, we stand firmly behind the Forum; to ensure appropriate pace and direction.
Over the last year, we’ve really started to see the Forum come into its own. I was pleased to see the Forum’s final strategy for collaborative innovation launched last November, which sets out in detail how the industry plans to simplify and modernise the UK payments system; and it certainly has the potential to be game changing.
We have seen extensive involvement by the Payments Community at every stage of the strategy’s development – a testament that this has been a truly collaborative endeavor.
The focus now turns to implementation, and that work has already started.
We are pleased with the progress the Forum has achieved so far, but we are also determined to hold the industry’s feet to the fire to develop and implement its proposals for a new payments architecture to an ambitious timeline; starting with the delivery of a New Payments Architecture blueprint and pilot in the summer.
As set out in its final strategy document, we expect the Forum to consult on its work in late summer, and to be prepared to handover the design work for the new payment system operator by the end of the year.
We also expect the Forum to progress with the delivery of the solutions identified to address end-users’ needs: ‘Request to Pay’, ‘Confirmation of Payee’ and ‘Enhanced Data’.
These solutions were developed in response to feedback from you and the wider payments community, and will give users greater control over automated payments, greater assurance that their payment will reach the intended beneficiary and the ability to send additional information with a payment.
We have confidence that the Forum’s will succeed in achieving its goals whilst maintaining security and resilience of the payment systems, but should it fail to do so, we will not hesitate to take action.
All three of these things – our work on access, ownership and collaborative innovation - are basically about driving better outcomes for payments systems users and ultimately consumers by driving competition and innovation into the system.
And if you draw it all together, we should be moving towards a world where we have state of the art payments functionality and control for consumers, driven by simplified open access, competition in infrastructure and overlay services.
We’ve come a long way over the last two years and will continue to work with the industry to deliver on the work we have already started as to open up access, drive competition into as many parts of the payments industry as possible and drive collaboration within.
We will be exploring three new areas with a view to understanding new industry trends and what our role, if any, should be in these areas.
All three areas are driven by changing technology and consumer expectations, reflecting the fact that the pace of change is without a doubt the greatest challenge we face as a regulator and as a payments community.
These have been identified in collaboration with our Panel and industry.
The three key themes are:
- Consumer protection and education
- The increasing use and value of payments data
- Changing competitive dynamics
Although we have identified these three areas as separate themes, we must not make the mistake of treating them as distinct.
The interconnectedness of these three areas is indisputable: new technologies give rise to a greater volume of new payments data, which in turn carries vast implications for consumer protection and education.
Similarly, the evolution of technology and an increase in the number and diversity of participants in the payments industry creates the potential for change in the competitive dynamics of the market, which may have implications for the consumer.
Let me take a moment to explain more fully our plans under each theme:
Consumer protection and education
The development of new ways to pay and the explosion of technology in payments are exciting and without a doubt a great sign of progress.
But, unless managed properly, it can also mean new opportunities for fraudsters to exploit consumers, as well as increased likelihood that some vulnerable users may get left behind.
To prepare for this, we will consider questions around future consumer protection, regulatory gaps, and consumer education around the benefits and risks associated with the use of new payment products and services, to name just a few examples.
The super-complaint we received from consumer group Which? has already started to take us into the area of consumer protection and we expect more consumer protection issues to emerge in the future.
Our consumer research and the Forum’s initiative to deliver financial crime solutions will progress existing exploratory work in the area of payment systems fraud.
We will also publish findings on the potential role of PSOs in tackling authorised push payment scams, which will expand our current knowledge of the scale of the problem.
We recognise that while payment systems and services need to meet the needs of an increasingly connected world, they should remain inclusive of users.
The financial capability principles drawn up by the Forum are an important step towards future payment services that are designed and delivered with the needs of the most vulnerable and excluded people in mind. They will contribute to wider efforts to improve the UK’s financial capability.
Use of data in payment systems
We are scoping the various issues that could arise as a result of the expected increase in the availability and commercial use of payments data.
For example, greater availability and use of payments data due to PSD2 or Open Banking could potentially drive innovation in the sector, resulting in more payments products and services being made available to end-users.
This could influence how competitive advantage is derived, ultimately impacting market structure and the nature of competition in the sector.
Increased commercial use of payments data will also have implications for end-users with respect to privacy, security and data protection.
Changing competitive dynamics
We will monitor the evolving market from a competition perspective, and direct our focus and regulatory response to any emerging issues.
We will particularly explore how the economics of the sector are changing, where competitive advantage is likely to come from, and what impact this is likely to have on market structure.
Our contactless mobile payments project is a great example of the type of work we might pursue under this theme.
The rapid growth in mobile payments in the UK could affect all three of our statutory objectives. To ensure our understanding of this sector was up to date, we issued information requests to selected participants in the contactless mobile payments sector back in September. We have now reviewed the responses and are considering how best to fill the few remaining gaps in our knowledge. We expect to re-engage with stakeholders in the coming months as part of this work.
The payments landscape is an exciting industry to be in at this moment in time and we’re pleased that our work to date is starting to pay off.
The PSR was set up to regulate the payments industry in order to drive innovation and competition through a forward-looking, pioneering and evidence-based approach.
To reiterate what I’ve said so far, in order to meet our objectives and wider goals, we will continue our ongoing work and explore three new themes of consumer protection and education, data use in payment systems and changing competitive dynamics in the market.
We will take the time to reflect and better understand what these themes mean for the payments landscape, and to determine what role, if any, we should play within the scope of our remit in responding to them.
It is this work that will provide us with the foundation for our future direction to 2020 and onwards, and I’m glad to be able to invite you to start this journey with us today.
I’m very excited to have you here and look forward to working with you in the year ahead.