Regulation and Innovation - friend or foe?

The Payment Systems Regulator (PSR) has had a busy first 12 months undergoing market reviews, mobilising the payment strategy forum and setting guidance for how the Interchange Fee Regulation (IFR) will be implemented in the UK.

It has the remit to ensure payment systems operate and are developed in a way that benefits the users; promote effective competition for payment services and products; and promote innovation in payment systems. Given that a regulator is typically characterised by existing to codify and enforce rules and impose oversight for the benefit of the public at large - to also promote innovation makes for an exciting challenge. However, it’s too soon to say how successful it’s been in its mission.

The infrastructure market review is looking at how the common ownership of major payment systems (Bacs, Faster Payment Service – FPS and LINK) and the central infrastructure provider (Vocalink) affects decision making, competition and innovation. The interim report has found that the ownership by a consortium of 18 banks and building societies provides no effective competition, is detrimental to innovation and the use of unique messaging standards is a barrier to the entry of new infrastructure providers. As a consequence the PSR is pushing for the banks to divest their interests in VocaLink and for Bacs, FPS and LINK to adopt international messaging standards.

The second market review is looking at indirect access to payment systems. Historically access to the payment systems is provided directly to members of the owning consortium with indirect access coming through sponsorship of one of the members. There have already been significant developments in this area with the opening of direct access arrangements to larger payment system providers (PSPs) such as challenger banks and the creation of an information hub[1] to demystify what payment systems are and how to gain access.

The payment strategy forum was fully mobilised at the start of 2016 and will lead the process to identify, prioritise and deliver initiatives where it is necessary for the payments industry to work together to promote collaborative innovation. It is also considering how payment systems can be developed to simplify access for PSPs. They are due to publish an overarching strategy for the UK payments industry later in the year.

As the PSR prepares for its first birthday it can celebrate a productive first year where it has already made demonstrable progress in ensuring payment systems operate in a way that benefits the users and promotes competition. The final publication of market reviews, overarching payment strategy and implementation plans could make for a troublesome second year. Only at this point an assessment can be made on how successful they have been at corralling a wide range of industry voices and interests to promote innovation.


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