We have published the interim findings of our market review into the ownership and competitiveness of infrastructure that supports the UK’s payment systems Bacs, Faster Payments System (FPS), and LINK.

The evidence we have gathered shows that there is no effective competition for the provision of UK payments infrastructure for these interbank payment systems.

This report presents our initial findings and outlines proposed remedies designed to address the issues identified. We are seeking feedback from all interested parties Thursday 21 April 2016.

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

Update: An updated version, version 1.1, was published on 26 February 2016. This version updated paragraph numbers.

Update: On 28 July 2016 we published the final findings of our market review.

What is payment systems infrastructure and why is it important?

The payment systems infrastructure is the hardware, software, secure telecommunications network and operating environments that supports the clearing and/or settlement of a payment.

Well-functioning payment systems contribute to the country’s economic productivity by reducing the costs of transactions, improving financial markets’ liquidity and enhancing the financial sector’s stability. It’s important that infrastructure services are reliable, efficient and deliver the best outcome for service-users.

Why are we conducting this review?

In June 2015, we published our terms of reference outlining our decision to proceed with a market review into the supply of payment systems infrastructure. We have a statutory objective to promote effective competition in the markets for payment systems and for the services provided by those systems, including between operators, PSPs and infrastructure providers.

The Bacs, FPS and LINK interbank payment systems are currently owned by a relatively small number of banks, who also own the main infrastructure provider these systems rely on, VocaLink. While this ownership arrangement has resulted in payment systems that are relatively robust and resilient, there have been concerns that it may limit competition and in turn limit innovation.

We are carrying out this market review to understand whether current infrastructure ownership arrangements and market structure restrict competition or innovation.

Why are we publishing this interim report?

We are publishing this interim report to share what stakeholders have told us so far and seek feedback on our provisional assessment and proposed remedies. This is to make sure our final approach delivers change in a proportionate and effective way.

Who should read this report?

This report is relevant to the operators of the payment systems, payment service providers, Independent ATM Deployers (IADs), infrastructure providers, service users and trade associations.

Our interim findings

The evidence we have gathered shows:

There is scope to improve competition in the provision of infrastructure services through competitive procurement processes.
The common ownership and control of payment systems at both operator and infrastructure provider level have an impact on competition and the speed of innovation in the industry.
LINK and VocaLink are currently not legally separate entities and the contractual agreement for core services is between VocaLink and 38 PSPs in LINK, which makes it difficult to change provider.
The UK payment systems’ unique messaging standards are acting as a barrier to entry for new infrastructure providers into the UK market.
Our proposed remedies

In this interim report we outline our early thinking on remedies which could address the issues we’ve found. These include:

Competitive procurement processes for the provision of infrastructure services, which are clearly defined, transparent and independently audited.
Potential divestment by banks of their interest in VocaLink.
Measures that ensure the separation of LINK from VocaLink.
A common international messaging standard adopted for Bacs, FPS and LINK.
Next steps

We welcome your feedback on our initial findings and potential remedies. You can share your comments with us by email at: infrastructurereview@psr.org.uk

The deadline for comments and responses to our proposed remedies is 5pm on Thursday 21 April 2016.

Additional information

As part of our market reviews, in December 2015 we commissioned a report by Lipis Advisors. This provides a fact-based comparison of payment system ownership and access models between the UK and 12 other countries. Read the full Lipis report here.

You can also read the annexes to the interim report.

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

Read the non-confidential responses (published 10 June 2016) to the interim report.

Market review into the supply of indirect access

In relation to our other market review on indirect access, we are aiming to publish our interim report in March and our final report in July. We remain committed to concluding our review as quickly and efficiently as possible, and look forward to hearing your views on our interim report once it’s been published.

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