New Regulator Seeks To Level The UK Payments Playing Field

Control of the money transfer system in the U.K. is changing hands. Going forward, the Payment Systems Regulator – a watchdog group set up as part of the Financial Conduct Authority to regulate Britain’s payments industry – will be running point on transfers, as opposed to the big high street banks that have controlled the system until now.

“We want to break open the control of payment systems, so it’s not just the big banks that control them who can use them,” Hannah Nixon, Managing Director of the new watchdog, told the Financial Times. “We need to make sure all those who use them or need access can have a real voice in the way these things are controlled — whether it’s a challenger bank, or a payment innovator.”

The new regulatory body launched in the U.K. yesterday, with a mandate to open up access to the infrastructure underpinning financial transactions of all kinds.

Currently the main systems of cash transfer in the U.K., such as the recently introduced fast payments, are largely controlled by the major players like RBS, Barclays or HSBC.

This creates something of a difficulty for competing and emerging payment systems – PayPal for example – which are trying to get a foothold in the market, according to the new regulator. Due to the big bank control, challengers either have to pay exorbitant fees to create their own direct access to the system, or they can choose to pay a competitor large bank for access.

Judging this system to be fundamentally unbalanced and unfair, the Payments Regulator has the authority to require established banks to submit to a new code of conduct that will make gaining access a more straightforward process. If banks do not submit voluntarily to making access more open, the regulator can directly intervene. It says it will.

“The real question the industry needs to focus on quickly is what do we want from our central payments systems,” Ms. Nixon noted. “The jury is out.”

Apart from their focus on banks, the regulator is also taking a closer look at the ownership of Vocalink, the company that provides the infrastructure underlying the payment schemes. Vocalink is presently controlled by a consortium of large banks and “building companies” which act as small banks.

“There are questions of competitiveness of the infrastructure and whether its ownership gets in the way of innovation,” she said. “So it could mean breaking up the ownership of Vocalink. All options are on the table. We’re looking carefully at what impact those options could have.”

The new regulator is also taking on the issue of prompt account switching.

The Payments Regulator established a forum for the industry so that solutions to make consumers able to more quickly change bank accounts can be shared. Some Conservative members of Parliament have advocated for a system that would allow consumers to take their bank account numbers with them when they change banks (much like one takes a cellphone number when changing providers.)

Banks have warned that the proposal would cost almost $15 million to implement.