In our last Payments Law Update we reported on the operational launch of the UK Payment Systems Regulator (PSR). One of the PSR’s functions is to keep the payments market under review. To this end, two market reviews are currently underway:
The first looks at the supply of indirect access, with the second focusing on ownership and competitiveness of infrastructure provision. In keeping with the theme of access and financial inclusion, we have considered the former below.
Why indirect access?
A payment service provider (PSP) has indirect access to a payment system if it has a contractual arrangement, or sponsor service, with another PSP, an indirect access provider (IAP), to enable it to provide payment services to its own customers (i.e. transferring funds using that payment system). The four main banks which provide indirect access to other banks, credit unions and PSPs are Barclays, HSBC, Lloyds and RBS. For many PSPs, or potential PSPs, indirect access provides an important, and sometimes the sole, route to accessing payment systems. Access to IAPs is thus an important driver of competition and innovation in the provision of payment services.
As a result of the FCA’s PSR: Call for Inputs and evidence gathering by the PSR, stakeholder banks and PSPs have raised concern about indirect access to payment systems, particularly in relation to limits on choice and fees charged.
The review is intended to assess the extent of these concerns and whether competition is working well for service users. The four key questions the PSR will focus on in this market review are as follows:
- What prices, service and choice do indirect PSPs want and receive?
- What factors may limit the number of IAPs in the market?
- What is the state of competition in the provision of indirect access?
- What options are there to improve indirect access to interbank payment systems?
The PSR published the final terms of reference on 29 May 2015. The information gathering phase will run from June to August of this year and will include requests for information from current and potential IAPs and PSPs as well as follow-up discussions. The PSR is conducting this review using its information gathering powers under the Financial Services (Banking Reform) Act 2013. A period of analysis and interim report consultation will follow, with a final report scheduled for publication in the spring of 2015.
There are a range of possible outcomes of the review, as detailed in the terms of reference, including; making directions; recommendations for further industry initiatives / regulation; publishing guidance; referring the matter to the Competition and Markets Authority; or taking no action.