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UK Payment Systems Regulator announces more detail on Strategy for future Competition and Regulatory Enforcement of Payments Supply Chain

  • United Kingdom
  • Competition, EU and Trade
  • Payment systems and digital commerce
  • Financial services - Payment services

16-10-2020

Background

On 29 July 2020, the Payment Systems Regulator (“PSR”) first announced the launch of its “Future Strategy” by publishing the first of three themes around which its strategy will be based. Theme 1, Innovation and Future Payment Methods, focusses on promoting debate about how the payments industry can remain flexible and innovative during this time of rapid global economic change.

The PSR has now announced the launch of two further themes to inform its Future Strategy:

  • Theme 2 - Competition: What role does the PSR play to ensure that competition is effective at all levels of the payments chain?  
  • Theme 3 - Choice and availability of payment methods: How can the PSR ensure that enough options are available to allow all people and businesses to make the payments they need and want to make? 

The purpose of the PSR’s Future Strategy is to design a pathway for how the PSR will use its regulatory and enforcement powers to achieve its three statutory objectives:

i)     promoting effective competition in the markets for payment systems and for services provided by those systems;
ii)    promoting the development of innovation in payment systems, in the interest of service-users; and
iii)   ensuring that payment systems are operated and developed in a way that considers and promotes the interests of service-users.

Interested parties have an opportunity to engage with the PSR until 30 October to seek to influence the Future Strategy, the outcomes the PSR will be seeking to achieve, and accordingly how the PSR might prioritise its regulatory and enforcement work in the future.

Theme 2: Competition

The principle aim of Theme 2 is for the PSR to consider how it should approach its competition objectives in the future – to this end, the PSR has identified the following questions, on which it is seeking feedback from businesses and consumers:

  • Is there currently effective competition at all levels of the supply chain in payments, and if not where could there be more and why?
  • Is effective competition possible and desirable at all levels of the supply chain, and are there any limits to competition?
  • Is competition currently providing effective benefits for consumers, and is competition succeeding in keeping downward pressure on fees and promoting innovation and choice?
  • Is competition benefitting all consumers equally?
  • Who benefits from increased competition and are consumers always sufficiently protected by adequate levels of competition?
  • How should the PSR intervene when it identifies that competition alone is not providing the level of protection needed?
  • Which areas require more competition in the market and what would be the benefits of increased competition in those areas?
  • Would the increased ability for consumers and/or merchants to switch between different payment methods make the UK payments sector more competitive?
  • Should innovation be promoted as a tool to increase competition, and is Open Banking a good example of this?

Theme 3: Choice and Availability

The PSR has highlighted that limited choice and availability can affect the speed and success of everyday transactions, thereby, in its view, causing loss of income for retailers and hindering the UK’s economic growth.

The PSR’s appears to be particularly interested in understanding the impact of changes in the market, such as the decline of older methods of payment such as cash, might have on choice and availability of payment methods and systems in the future.

With this in mind, the PSR has put forward the following questions on which it is seeking feedback:

  • Which types of payments are under-provided in the current environment, and how could more choice be encouraged so that consumers and businesses can adapt to changing circumstances?
  • If cash continues to decline as a means of payment and UK consumers and businesses continue to rely heavily on the two main card schemes when making payments, will these two systems be enough to allow people and businesses to make and receive all the payments they want and need to make?
  • Given the rapid decline in the use of cash and cheques and the corresponding increase in the use of contactless and online payments as a result of the Covid-19 pandemic, what do these changes mean for consumers’ ability to rely on certain payment methods?
  • How can innovation in payments help weather disruptive changes such as those caused by the Covid-19 pandemic, and what should regulators do to make sure consumers can still make payments in times of rapid change?
  • Is it always better to have multiple methods to make a payment so that businesses and consumers can choose between them or are there circumstances where a specialisation (and so perhaps reliance on one provider) is necessary?
  • Is the PSR’s work in the area of improving access to payment systems enough to allow access to all services needed by consumers and businesses?
  • Can businesses that need different services easily migrate to other providers or do they face barriers to doing so?
  • How is choice and availability developing with respect to cross-border payments, and what does this mean for domestic systems?

Comment and Next Steps

Since its inception in 2015, the PSR has focussed significant resources on addressing legacy market issues relating to infrastructure and access to payment systems, as well as the impact of the now well established interchange fee regulation on card-acquiring services (see our briefing here).

The initial signs are that the PSR’s Future Strategy may signal a shift towards the PSR looking more proactively at competition and market issues affecting all aspects of the payments supply chain. The feedback being sought suggests that the PSR is likely to focus its efforts on targeting parts of the market where there are low levels of competition, choice and innovation and that, in the future, it will be more willing and ready to intervene to tackle features of the market which restrict the entry of new providers and new products.

This period of formal engagement, which runs until 30 October, presents a short but potentially important opportunity for interested parties to engage with the PSR to influence the future outcomes the PSR will be seeking to achieve through its regulatory and enforcement powers.

Feedback received will form part of the PSR’s initial dialogue with interested parties, ahead of consulting on its full draft Strategy early next year. This draft strategy will form the basis of a formal consultation, during which the PSR will work closely with the FCA, Bank of England and HM Treasury to fully develop its Future Strategy.

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