PSR MR15/1.2 - Interim report: market review into the supply of indirect access to payment systems

We have published the interim findings and proposed next steps for our market review into the supply of indirect access to payment systems.

We are seeking stakeholders’ views on these findings by Thursday 5 May 2016.

Our interim conclusion is that work to open up access to payment systems is generating increasingly positive results. Although there are some specific concerns about choice, service quality and the ability of indirect PSPs to switch providers, the PSR and the industry are making changes that we expect will address these issues.

This market review is part of our wider programme of work aimed at helping more organisations obtain access to the UK’s payment systems.

Note: where you see a 'scissors' icon in the report, it represents content that has been redacted.

Update: On 21 July 2016 we published the final findings of our market review.

Why is access to payment systems important?

For banks, building societies, and other payment service providers (PSPs) to operate, they need to be able to move money between accounts. To do this they need access to a payment system. PSPs can have either direct or indirect access to the payment systems.

Indirect access is the ability to send and receive payments through a third party, such as another bank. It is just one way in which smaller banks, building societies and other PSPs can get access to payment systems.

Having access is vital for these organisations to move money between accounts, and is therefore a key enabler of competition and innovation in both the payments and banking sectors.

Why are we publishing this review?

In May 2015, we published our final terms of reference outlining our decision to proceed with a market review into the supply of indirect access to payment systems and whether competition is working for service-users.

Our statutory objectives are to promote competition and innovation in payment systems, and ensure they work in the interests of the organisations and people that use them.
We are publishing this report to share our interim findings. We welcome stakeholders’ views on our proposed approach.

Who should read this report?

This interim report is relevant to banks, building societies and other PSPs who currently provide indirect access to, or receive indirect access from, other PSPs.

What are we proposing?

We have already taken a number of steps to promote better choice in access services and improve service quality. We’re opening up direct access to interbank payment systems so that larger PSPs such as challenger banks have a real choice between direct and indirect access.

We have also made entry easier by increasing the amount of information available to PSPs and are supporting the industry Code of Conduct to improve indirect access.

Alongside our programme of work, the Payments Strategy Forum is also considering how payment systems can be developed to simplify access for PSPs.

In addition, there are a number of developments underway or anticipated across the industry that should alleviate concerns and help deliver widespread access for banks, building societies and other PSPs. These developments include:

• Market entry and expansion: We have been working with a number of businesses that are planning to start offering indirect access or expand their current services, bringing more choice to banks, building societies and other PSPs that require these services. Recent announcements from industry serve as good examples of this.
• Reviews of financial crime regulation: There are at least six reviews underway or recently concluded which may affect the way financial crime regulation applies in the UK and internationally. These various reviews are aimed at improving the transparency, clarity and effectiveness of the UK’s anti-money laundering and counter terrorist financing framework.
• Improved access options: Alternative access models for interbank payment systems are emerging, including the development of aggregator arrangements for the Faster Payments Service (FPS).

We propose to support these developments and monitor their impact, rather than take immediate regulatory action now, which could hinder progress.  If our concerns are not sufficiently addressed over the next 12 months we will take further action.

You can find the full list of relevant industry developments in the report.

What are the next steps?

We welcome your feedback on our initial findings and proposed next steps. You can share your comments with us by sending an email to: iamr@psr.org.uk

The deadline for comments and responses to our proposed remedies is 5pm on Thursday 5 May 2016.

We expect to publish our final report in summer 2016.

Additional Information

As part of our market reviews, we commissioned two consultant reports:

A report by Regulatory Economics, produced in July 2015, considers the relevant context for considering indirect access to payment systems, drawing on relevant economic theory and regulatory practice. Read the Regulatory Economics report.

A report by Lipis Advisors, produced in December 2015, which provides a fact-based comparison of payment system ownership and access models between the UK and 12 other countries. Read the Lipis Advisors report.

You can also read the annexes to the interim report.

We have produced a factsheet to accompany the interim report. Read it here.