In its final report (140-page / 849KB PDF) following a market review into the supply of infrastructure services in UK payments, the Payment Systems Regulator (PSR) said "there is currently no effective competition in the market for the provision of central infrastructure services for Bacs, FPS and LINK".
The PSR has set out a package of measures which it said would help address the issues it has identified in the market.
It said "competitive procurement exercises" should be undertaken as a means of improving competition in providing central infrastructure services.
"The lack of competitive procurement exercises by the operators is a barrier to entry that prevents potential providers from competing," the PSR said. "There is evidence that a number of potential providers are interested in competing."
The regulator also said that "a common international messaging standard, for Bacs and FPS" should be introduced, and potentially for LINK too. In its review it found that the "bespoke messaging standards" UK payment systems use "are acting as a barrier to entry for new infrastructure providers into the UK market".
The PSR also called for divestment of their interests in Vocalink by Barclays, HSBC, Lloyds and RBS. They are the largest shareholders in the infrastructure provider that provides the hardware, software, secure telecommunications network and operating environments supporting the clearing and settlement of payments for the Bacs, FPS and LINK interbank payment systems. The PSR welcomed the recent announcement that MasterCard has agreed to buy a 92.4% stake in VocaLink Holdings Limited.
The acquisition by MasterCard "could address the issues we have identified as causing a restriction of competition currently", the PSR said.
Hannah Nixon, managing director of the PSR, said: "We need to future-proof the payments system so that the UK can continue to be at the forefront of payments innovation and deliver the best service to consumers. This means ensuring there is effective competition and that new entrants face the right conditions to enable them come to market."
"As it stands, the current system is not adequate and we need to see a change. There is not one single area of concern, but a series of issues that are entwined and require a holistic approach in order to see them resolved. The remedies we are considering are packaged to achieve just that," she said.
The PSR seeks feedback on the remedies under consideration by 22 September 2016.