Payments infrastructure: Is change needed to drive competition?

The last few years have seen the emergence of a range of FinTech companies and new providers looking to shake up the banking industry and revolutionize how people make payments and manage their finances.

But while new, online-based players can offer real alternatives to traditional payment solutions for many people, it has been suggested that as the underlying financial services infrastructure that all these companies rely on is stifling competition, because it is too tied to traditional financial institutions and the way they do business.

Calls for new regulations

This is the view of the UK Payment Systems Regulator (PSR), which recently warned that the country’s infrastructure needs significant reform if it is to effectively promote competition and ensure that consumers are getting the best possible service.

Managing director of the PSR Hannah Nixon explained: “As it stands, the current system is not adequate and we need to see a change. There is not one single area of concern, but a series of issues that are entwined and require a holistic approach in order to see them resolved.”

Among the key issues identified by the regulator is the fact that key payments systems, such as Bacs, Faster Payments and LINK, are controlled by a relatively small number of banks, which therefore dominate the country’s financial infrastructure.

The common ownership and control of both the payment systems and the infrastructure provider was also named as a key concern. At the same time, the UK’s bespoke messaging standards act as a barrier to entry for new infrastructure providers looking to break into the nation’s market.

What could change?

To remedy this, the PSR said a range of reforms are needed that promote competition, such as the big banks releasing their control of payment system operators. Having an independent organization in charge of these key parts of the UK’s payment infrastructure will be vital in promoting competition and ensuring that new, innovative players are able to compete on an equal footing with established names.

It also called for enhanced interoperability between systems, including a common international messaging standard for Bacs and Faster Payments. Additionally, the PSR wants to see regulations that require infrastructure operators to follow a prescribed procurement process.

Is the industry already acting?

The third key point raised by the PSR was that banks should divest their interest in VocaLink, a process that is already underway. Ms Nixon suggested the recent news that the company – which processes around 90 per cent of UK salaries and 70 per cent of household bills – is set to be taken over by MasterCard could go some way to alleviating the biggest concerns raised by the regulator.

“The fact that discussions are taking place about ownership, and changes are being made, is an encouraging sign,” she stated.

As well as providing MasterCard with greater access to all types of electronic payments and payment processes, the card provider has stated that the move will “lead to even more choice in how consumers, merchants and governments make and receive payments”.

But as the PSR notes, the banks divesting their interest in VocaLink is not a silver bullet for solving the issues within the payments sector, and the problems in the industry run deeper than just network ownership. Therefore, it can be expected that there will be more movement on this in the coming months as the regulator looks to ensure the UK’s infrastructure is fit for the future.

Written by Andy Brown

Andy Brown

Andy is marketing director for payments at NCR. He has nearly 30 years’ experience in e-payment systems from the delivery and support of systems in the Far East and Europe, from both the product management and marketing perspectives. Based in the UK, Andy is responsible for marketing NCR payment solutions.

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