This is welcome news for payment system participants frustrated by dealing with multiple sets of creaking payments infrastructure. A single set of rails for processing a variety of payments will no doubt simplify processes for payment providers and end users in the long term, and better accommodate a changing payments landscape.
The planned new payment system operator (NPSO) will take over the functions of the three retail payment system operators (PSOs): Bacs Payment Schemes Limited (Bacs), Cheque and Credit Clearing Company Ltd and Faster Payments Scheme Ltd (FPS). This consolidation follows the recommendations of a cross-industry group, tasked by the Payment Systems Regulator (PSR) with producing a strategy to help "unlock competition and innovation in payments".
Members of the current schemes as well as future members of the NPSO will be interested to learn both the proposed terms of the guarantee and the transaction fee structure, as described below, designed to fund the new consolidated infrastructure. End users and consumer groups will also wish to understand what the knock-on effect will be to the underlying cost of payment transactions.
In its report of November 2016, the PSR-backed Payments Strategy Forum found that the lack of a common entry point for access and different on-boarding processes, exacerbated by the existing structure and governance model of the PSOs, could potentially be improved by consolidating the schemes.
On 4 May 2017, the Payment System Operator Delivery Group (PSO DG) released its delivery plan report. This report set out its recommendations regarding how implementation of the new PSO should be funded, its culture and values, as well as governance issues such as the structure and principles that the new operator's board should adopt.
The PSO DG considered that, in consolidating, the NPSO would be able to take a singular view on the strategic development of products and services, enable simpler and more effective governance and regulatory oversight and allow communication with one rather than three PSO entities. It also identified cost efficiency opportunities. On this basis, the PSO DG supported the proposal to consolidate the schemes.
The NPSO will be established with the intention of being the "pre-eminent body that will drive best in class payment infrastructure in the UK for the benefit of the stakeholder community", according to the PSO DG delivery plan. Its purpose is "to support a vibrant UK economy enabling a globally competitive payments industry through the provision of robust, resilient, collaborative retail payments services, rules and standards for the benefit, and meeting the evolving needs, of all users".
The NPSO will be underpinned by six strategic objectives to support its purpose:
- being robust and resilient;
- being end-user focused;
- agility and innovation;
- making use of excellent people.
CMA approval is required before the consolidation can progress, but this is expected to be given in mid-July 2017 and should not impeded implementation.
Following CMA approval, the intention is that Bacs, FPS and the newly incorporated ICS Co. - the entity which will, at some stage, own C&CCC's new Image Clearing System - will become wholly-owned subsidiaries of NPSO by the end of September this year (stage one). Stage two, during which functions such as strategy, finance and legal will be consolidated, is set to complete by the end of the year. This will be followed by stage three, where operator responsibilities will transfer from the PSOs to the NPSO.
Company structure will be critical to the NPSO fulfilling its purpose. With this in mind, the PSO DG has recommended that the NPSO be incorporated as a company limited by guarantee. Guarantors would provide a very limited guarantee (£1 has been suggested) but, importantly, would act to hold the board to account for the continuing fulfilment of the purpose of the company. It is anticipated that the guarantor group will be wider than the current membership group of the existing PSOs. Board directors will not represent a specific guarantor and will only be appointed after undergoing a rigorous and transparent selection process. They will work collectively to achieve the NPSO's purpose and sustainability.
The funding model that the PSO DG has proposed would be based primarily on transaction fees, with the intention of reducing the possibility of unexpected future calls on participants. The company would be permitted to build up a surplus for reinvestment, not distribution; and would be able to seek capital funding for specific development projects from diverse sources, for example specific groups of participants.
Henry Burkitt and Tony Anderson are banking law experts at Pinsent Masons, the law firm behind Out-Law.com.