Regulator to review ownership of and competition in UK interbank payment systems

The PSR said its market review would be "focused on the supply of infrastructure services related to interbank payment systems for Bacs, Faster Payments Scheme, and LINK" and ultimately "consider whether the current provision of infrastructure services in UK interbank payment systems delivers a good outcome for service-users".

Among the aspects of the market it said it could consider is how ownership arrangements for the hardware, software and telecoms networks and operating environments that underpin these payment systems affect competition in the provision of "infrastructure services" for those payment systems.

The PSR could also examine whether there are "barriers to effective competition" in the market and whether new companies are likely to enter the market or for the market to otherwise expand, it said.

"Currently, a small number of firms jointly own or control the BACs, Faster Payments, the LINK systems and the central infrastructure for these systems," the PSR said in a paper that outlined the final terms of reference for its market review (22-page / 945KB PDF). "These arrangements are perceived to have resulted in the development of relatively robust and resilient payment systems and may provide incentives to keep infrastructure services costs down. However, concerns have been raised that they may also enable some [payment service providers (PSPs)] to exert greater influence over infrastructure development and operation in a way that is in their own interests rather than in the interests of other service-users."

"We would like to understand how changes to infrastructure are driven, how improvements are suggested and decided upon that relate to the procurement of infrastructure and what role infrastructure providers play in this process. We will therefore look at the role of interbank operators as customers of infrastructure services," it said.

An interim report from the review is expected to be published early next year, with a final report likely to be issued in May or June 2016, the PSR said.

"As well as examining existing research and analysing information that we already hold, we plan to collect additional information from market participants," the PSR said. "We will engage with operators, existing and potential providers of infrastructure services, PSPs and service-users over the coming months. We will use a variety of methods for this engagement including but not limited to: interviews, roundtables and site visits. We expect to gather evidence through the use of specific surveys and requests for detailed information from some participants."

The PSR said it could decide on any of a number of actions depending on the outcome of the review. These include issuing guidance, demanding changes to "governance arrangements of infrastructure providers", requiring payment service providers to sell off their interest in infrastructure providers or referring the market to the Competition and Markets Authority for a full competition investigation.