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The United Kingdom Payment Systems Regulator (PSR) has published an interim report, setting out the findings of its indirect access market review.
The review examines the supply of indirect access and to determine whether competition is working well for those who use payment systems – or whether the PSR needs to take further action to make it more effective.
The regulator notes that its aim is to ensure that payment service providers (PSPs), such as banks, building societies, credit unions, payment institutions and electronic money institutions, can access payment systems without facing anti-competitive barriers or unnecessary burdens.
PSR’s interim conclusion on indirect access to interbank payment systems is that competition in the supply of indirect access is producing some good outcomes:
- large IPSPs (indirect payment service providers) have a variety of options to access payment systems;
- there is a substantial level of overall satisfaction with the quality of the indirect access offering that IPSPs receive;
- the overall feedback the regulator has received to date does not indicate a widespread level of concern with price;
- PSR is seeing investment and innovation in new and improved service offerings, which should improve quality and choice outcomes for all IPSPs.
However, the regulator has also identified specific concerns that limit competition and innovation in the provision of payment services, and the interests of service-users such as people and businesses that use them. The list of concerns includes:
- While large IPSPs have a wider selection of access options, and many are exercising that choice (for instance, via options such as direct access or aggregators), many small non-agency IPSPs have a limited choice of IAPs. This limited choice constrains the ability of these smaller non-agency IPSPs to negotiate on price, or to find an alternative provider if they are not satisfied with the services they receive.
- IPSPs in all categories are experiencing quality-related issues with indirect access. Banks and building societies have concerns about the quality of technical access to FPS and its availability. Small non-agency IPSPs have issues with notice periods for the termination of indirect access agreements and the relationship management provided by IAPs. These issues limit some IPSPs’ ability to compete in related markets, such as retail banking.
- IPSPs in all categories face barriers to switching IAPs, which reduces the competitive pressure on IAPs and prevents IPSPs from securing the best possible price and quality outcomes.
The regulator says certain market characteristics are the source of these concerns, in particular:
- Industry responses to financial crime regulations;
- Lack of entry of IAPs;
- Growing demand for real-time payments.
PSR proposes to support certain developments rather than take immediate regulatory action, which may affect the incentives for such developments to take place. The regulator expects these developments to improve choice, quality and price outcomes for service-users:
- PSR’s programme of work on direct access;
- Market entry and expansion;
- Improved IAP FPS access offerings;
- Development of the Image Clearing System;
- The Bank of England’s strategic review of its real-time gross settlement (RTGS) infrastructure;
- IAP Code of Conduct;.
- Information-related initiatives;
- Reviews of financial crime regulation;.
- Payments Strategy Forum;
- The CMA’s proposed measures to improve switching as part of its Retail Banking Market Investigation;
- Current Account Switch Service (CASS).
What are the next steps?
The regulator welcomes feedback on its initial findings and proposed next steps. Comments should be sent not later than 5pm on Thursday 5 May 2016 to email@example.com.
PSR expects to publish our final report in summer 2016.
For the full report, click here.