The United Kingdom’s independent payment regulator has issued a plan designed to make payment services more available and competitive. In a five-year strategic plan announced Thursday (Jan. 13), the Payment Systems Regulator (PSR) said the new guidelines provide multiple ways to improve the payments sector.
It includes four areas of interest. The first two are about consumers, for instance how to guarantee access to payment services and how to ensure users are protected when using them. The other two are about companies, how to encourage competition between operators, payment service and infrastructure providers and how to unlock the potential of direct payments as an alternative to cards.
“Payments are an essential part of daily life and it’s the PSR’s job to ensure that the systems underpinning them work well for everybody,” said Chris Hemsley, PSR’s managing director, in a statement.
While the regulator recognized much of the payments markets are effective, it also suggested that new rules on the payment ecosystem may be necessary to prepare the U.K. for the future.
The PSR’s report focuses on improving competition between payment systems, not just within payment systems. To date, the focus has been particularly on the latter — supporting more competition within a given payment system, notably within Faster Payments. The strategy now is to increase the competition between different systems because this reflects the changing nature of the payment sector. This includes making digital payments more competitive, suggesting that the regulator will encourage payments other than credit cards. This is key, Hemsley said, because the future of retail payments is becoming increasingly about digital payments, most of which are made by using card payment systems.
The PSR’s role is to ensure that the payment industry is competitive and most of the plan is designed to achieve this goal. The PSR dedicates half of the report to emphasize that account-to-account payments, or Interbank System as it is called in the report, is the future of payments in the U.K. and should be provided with enough support, either financially or regulatory. This new system will be owned and operated by Pay.UK, a new authority created for this specific purpose that will also be in charge of selecting the companies that will have access to the new payment infrastructure.
“We will need to make sure that financial services firms and Pay.UK can effectively agree rules and standards for new functionality. We will support Pay.UK’s ambition to upgrade and replace its technology. If new agreements to support new ways of paying are created, we will also need to ensure that they can still be reached by regulation, and we will work with the Treasury to make sure they are,” the regulator said.
In addition to ensuring that the New Payment Architecture and Pay.UK has enough funds and good governance rules, the regulator is examining card and cross-border interchange fees.
In the view of the regulator, credit and debit cards are still dominant for retail payments and existing alternatives like Apple Pay, Google Pay or crypto haven´t really taken off. While the regulator doesn’t suggest this is necessarily a problem, it says that “the competitive forces may not be sufficient strong to protect people and businesses.” This is another way to say that card fees may be high, and the regulator may need to take action to provide cheaper alternatives.
To that end, the PSR is considering a two-step plan to do this. First, in the short term, impose temporary measures such as card fees caps using regulation. Second, in the long-term, support the Interbank System and other open banking innovations to reduce the reliance on card networks for retail payments.
In summary, the five-year plan shows how the regulator wants to make a competitive payment sector even more competitive by lowering the costs of making transactions. Without specific proposals, the plan outlines some course of action that will require further development and consultation with the public. Yet not all the initiatives will be regulatory driven, the regulator expects the industry to develop their own payment solutions and accommodate them within the regulatory framework.