The regulatory challenges ahead - speech by Hannah Nixon at the Westminster Business Forum
Speech by Hannah Nixon, Managing Director of the PSR, at the Westminster Business Forum, on 21 February 2017 in London.
This is the text of the speech as drafted and may differ from the delivered version.
It gives me great pleasure to be able to address you today, and I extend my thanks to the Westminster Business Forum for inviting me here.
The world of payments is clearly an exciting place to be right now. We’ve heard lots so far this morning about emerging trends – driven by changing technology, changing consumer expectations and regulation.
We’re seeing lots of new players coming into the market – tech companies, new retail banks, new payment service providers – and this competition is driving innovation. There’s clearly lots of innovation at the consumer end of the market – with wearables, apps and so forth - and, increasingly, in the core payment systems themselves – led in particular by the work of the Payment Strategy Forum.
As the PSR, with duties to promote competition and innovation in the interests of consumers, these are things we've been driving since our inception almost two years ago. So it’s good to see that our work is starting to pay off.
In the few minutes I have, I want to set out how the various initiatives we've undertaken – some of which we’ve heard a bit about already today - fit together, and then say something about what we will be focussing on going forward.
So what have we focused on to date?
Well, if we go back a couple of years, we spent a lot of time engaging with the whole payments community, from representatives of end consumers to fin techs to banks. The feedback we got led us to focus on three key areas:
- We heard that difficulties in getting access to payment systems were getting in the way of retail banking competition and competition between PSPs more widely. That’s why we’ve focused heavily on opening up access to payment systems. It’s now quicker, easier and cheaper to connect directly to the interbank payment systems, there is more choice in ways to connect and by the end of this year we will have achieved a near doubling of the number of direct participants in FPS.
- 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 into the ownership and competitiveness of the infrastructure that supports Bacs, FPS, and LINK.
- We also heard concerns that the industry was slow to innovate where collaboration is needed. So while there’s lots of innovation at the consumer end, much less was happening in the behind the scenes plumbing. That’s why we set up the Payments Strategy Forum.
And on that note, I was really pleased to see the Forum launch its final strategy at the end of November 2016. We now have a potentially game changing strategy for payments that will drive real benefits for users and has the backing of the whole payments community.
All three of those things are basically about driving as much competition as possible into as many parts of the payments supply chain as possible; which in turn should drive new functionality and better outcomes for payment systems users and ultimately consumers.
Looking ahead, we will clearly be following through on all these areas. We will continue to push the payment systems to make it easier and faster to get access; pushing for further simplification through the Forum’s proposal to combine a number of the interbank schemes.
We will follow through on the infrastructure market review remedies, to drive competition into the provision of payments infrastructure.
And we are holding 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.
But in addition to all that we will be exploring some new themes, which we've developed with our Panel:
- Consumer protection.
- The use of data.
- Changing competitive dynamics.
All three of these reflect that the pace of technological change is without a doubt the greatest challenge we face as a regulator and as a payments community. We’ll be looking at all these issues with a view to understanding the landscape better and determining what, if any, role we should play.
The rise of fintechs and the gradual move towards a society that relies less on cash is likely to transform the payments industry forever.
Unfortunately, new technologies also mean new opportunities for fraudsters.
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.
We’re also seeking much greater availability and use of payments data (including cards data). While this could drive innovation in the sector, resulting in more payment products and services being made available to end-users, the increased commercial use of payments data could have implications for end-users with respect to privacy, security and data protection. We want to explore those issues and consider what our role should be.
And finally, new technology and new participants in the payments space is inevitably changing the competitive dynamics of the sector. Again, we want to explore those issues and understand the implications for market structure and competition.
So there’s a lot going on. While we’ve made much progress in terms of tackling the big themes of access, ownership and collaborative innovation; driving both competition and innovation in the interests of users; much remains to be done.
Our challenge as a regulator will be to stay ahead of the curve to foresee challenges and to fill any regulatory gaps as quickly as possible; and regularly re-evaluating the existing regulatory framework.
We will continue to create an enabling environment that fosters competition and innovation and puts users at its heart. We look forward to working with the industry to do just that.