Regulator consults on regulatory approach to card payment systems

The PSR is seeking input on governance arrangements, fees and cost sharing practices and the way payment service providers access card payment systems. It also wants to find out whether changes to rules on interchange fees are affecting the way card payment systems function. The call for input (24-page / 723KB PDF) is open until 31 July.

"Our interest in payment cards is not new," the PSR said. "In our consultation paper on a new regulatory framework for payment systems in the UK, we noted that some of the concerns around interbank payment systems (i.e. indirect access, transparency, governance and how service-users are represented in decision making) are also relevant to card payment systems. These are issues that we want to explore further."

"In addition, new legislation from Europe, most notably the new Interchange Fee Regulation (IFR), is bringing major changes to the way UK card payment systems operate. This legislation will mean new rules and caps have to be implemented in the UK for interchange fees," it said.

The IFR requires EU countries to designate a regulator to oversee compliance with the new rules. The PSR said it expects the UK government to designate it as "a competent authority" for the purposes of the IFR and said that to help develop its "regulatory approach" it wants industry to tell it how they "expect to respond to the legislation, as well as other trends and issues within card payment systems".

The IFR imposes new caps on the 'interchange fees' that are applied to credit or debit card transactions. The PSR said one of the things it wants to understand is how the caps under the IFR will effect innovation in the card payments market. It said it also wants to learn more about how other "fees, charges, fines and other cost sharing mechanisms in card systems" impact the way those systems operate.

"While there is substantial economic literature on interchange fees, and numerous competition and regulatory publications on these fees, relatively little attention has been paid to other cost sharing mechanisms in card systems, such as scheme fees and rules governing chargebacks (i.e. the reversal of a card transaction) and fraud," the PSR said. "We want to identify and understand the extent to which each of those arrangements might be amended in a way that would affect the balance of system costs across the issuing and acquiring sides of the market following, the introduction of the IFR."

The PSR said it also wants to understand why some payment service providers (PSPs) elect to access card payment systems "indirectly".

"It is important to identify why there is a demand for indirect access to card systems because there may be links with other aspects of cards systems (e.g. demand for indirect access may be linked to issues regarding transparency, governance, availability of sponsorship arrangements or costs)," the PSR said. "We note that some PSPs access card systems through a sponsor that is a member of the same corporate group and it may be that such arrangements simply reflect the administrative efficiencies that can be gained. However, other sponsored access arrangements are commercial in nature and it is these arrangements that we wish to understand in greater detail."

The PSR took on the role of regulating a number of payment systems in operation in the UK on 1 April this year. It is tasked with promoting effective competition and innovation in payment systems and ensuring that those systems are operated and developed in the interest of business and consumer users of those systems. 

The PSR regulates the payment systems designated for regulation by the Treasury. The Bacs, Cheque and Credit Clearing, Northern Ireland Cheque Clearing, CHAPS, Faster Payments, LINK, MasterCard and Visa payment systems are all currently subject to the PSR's oversight.