Payment Matters No. 13: UK

• United Kingdom

• Financial services - Payment services

24-11-2014

In this month's edition:

• PSR Consultation - A new regulatory framework for payment systems in the UK
• New thumbprint technology for MasterCard payments
• Code of Conduct for MMPs
• Arcadia Group Brands Ltd -v- Visa Inc
• HM Treasury consults on designation of payments system
• Payments Council’s first full-year results for Current Account Switch Service
• Meltdown of UK payments system
• HM Treasury’s consultation outcome on cheque imaging

PSR Consultation - A new regulatory framework for payment systems in the UK

The Payment Systems Regulator (PSR) has opened a consultation 'A new regulatory framework for payment systems in the UK' with responses due by Monday 12 January 2015.

The consultation paper sets out the PSR’s proposed approach to regulation, covering the high-level behavioural principles to which participants in regulated payment systems are expected to adhere, as well as a range of policy proposals. The PSR has also published a suite of draft processes and guidance, including penalties guidance.

Key proposals include:

• the establishment of an industry strategy-setting forum
• requirements as to the governance arrangements of payment systems
• measures to promote fairer and more open access to payment systems.

In addition, the regulator has announced that it will launch two market reviews under its regulatory powers in April 2015, one into indirect access and one into the ownership and competitiveness of infrastructure provision to UK payment systems.

What this means for you

Our competition expert's full article on the consultation is available here.

The paper introduces a number of new compliance obligations and requires other steps to be taken, such as the creation of a Code of Conduct. If implemented, the proposals will place an additional regulatory burden on the payment systems themselves as well as their participants, some of which will need to be complied with by 1 April 2014. The sector will therefore need to review the paper carefully and consider what, if any, steps may need to be taken during the coming months.

On 26 November Gareth Thomas, Head of Regulatory Strategy and Policy at the PSR will be joining our event Financial services and competition issues – a regulatory updated for financial institutions. A limited number of places are still available. Click here to book.

Please contact Julia Woodward-Carlton or Lesley Farrell for further details about the consultation or the PSR more generally.

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New thumbprint technology for MasterCard payments

Following successful trials in Norway, MasterCard is now ready to bring biometric cards to the UK, enabling customers to authorise payments with their thumbprint. The new technology works by allowing users to place their thumb on a special reader contained within the card, whilst holding it over a contactless terminal. Currently, bank customers can pay up to £20 via contactless payment. However, it is planned that the thumbprint method will allow for payments of any value.

What this means for you

MasterCard has said that biometric cards will now be offered to UK banks. It anticipates that the first cards will be with customers by this time next year. Customers will need to register their thumb - although some may have security concerns, those who are technologically-minded or struggle to remember their PIN will no doubt embrace the new way of making payments. Security concerns for new technology are nothing new. The key issue is whether card holders will embrace the wealth of new technology that enables faster and easier payments, in particular the inevitable rise of mobile phone payments. The cost of the cards will be borne by the card issuers but it is hoped that reduced fraud levels will counteract the additional cost of the technology.

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Code of Conduct for MMPs

The GSMA (the global trade body for the mobile industry) has recently introduced a Code of Conduct for Mobile Money Providers (MMPs). The code outlines eight key principles aimed at promoting the adoption of consistent risk mitigation practices by MMPs. The GSMA is working with its members to provide guidance on the implementation of the principles.

What this means for you

The code establishes a minimum requirement for all subscribers, with a view to ensuring that customers are treated in a fair manner and that their funds are processed securely through mobile networks. If applied consistently, the code should increase the quality of services for customers and as a result, contribute to customer satisfaction. Subscription to the code is voluntary but has been welcomed by major mobile network operators.

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Arcadia Group Brands Ltd and ors v Visa Inc and ors

The court has recently accepted Visa’s submissions that the claimants (a variety of major UK retailers) had enough information to plead their claim for damages before 2007. This litigation concerns alleged breaches of EU, UK and Irish competition law dating back to the 1970s and arises from Visa’s imposition of multi-lateral interchange fees (MIF). The court has struck out that portion of the claim which falls foul of the primary six-year period contained in the Limitation Act 1980.

What this means for you

This is another development in the ongoing series of interchange fee litigation claims which concerns the question of whether MIFs marked an unlawful restriction of competition. The decision will be of interest to all of those that have historically paid or received MIFs. However, with large sums at stake (estimated at £500 million), an appeal is expected.

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HM Treasury consults on designation of payments system

On 14 October 2014, HM Treasury published a consultation document on the designation of payment systems for regulation by the PSR. The consultation document explains the criteria for the designation of payment systems. It also sets out those payment systems that HM Treasury believes meets the criteria and therefore proposes to designate and bring within the scope of the PSR's powers. Initially, HM Treasury proposes to designate Bacs, CHAPS, Faster Payments, Link, Cheque and Credit, Northern Ireland clearing, Visa and MasterCard.

What this means for you

The consultation period has now ended but it is worth noting that once a payment system is designated, the PSR will have a range of powers over its participants, e.g. operators, infrastructure providers and payment service providers that provide payment services using the system. Any designation orders will be effective by 1 April 2015, the same day on which the PSR becomes fully operational.

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Payments Council’s first full-year results for Current Account Switch Service

The Payments Council has published its latest dashboard for the new Current Account Switch Service, covering the first full 12-month period from the start of October 2013 to the end of September 2014. The dashboard shows that high customer awareness and confidence levels, coupled with a more competitive marketplace, have resulted in a year-on-year increase in switching levels.

What this means for you

Switching bank accounts has never been easier for customers in the UK. With the added peace of mind delivered by the Current Account Switch Guarantee, competition and choice are expected to flourish amongst new and existing current account providers. At a European level, the Payment Accounts Directive (PAD) was adopted in September 2014 and requires member states to ensure that payment service providers provide a switching service to any consumer who opens or holds a payment account with a payment service provider located in the territory of the member state in question. In that respect, through the new Current Account Switch Service, the UK seems to be ahead of the curve.

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Meltdown of UK payments system

The Bank of England (BoE) experienced a 10-hour meltdown of CHAPS, one of its key payments systems on 20 October 2014, due to the BoE temporarily pausing the Real Time Gross Settlement payment system to resolve a technical issue. This prevented UK borrowers from accessing a mortgage and delayed hundreds of billions worth of deals. The BoE said it will be carrying out a through, independent review of the causes of the disruption, which will cover the causes of the incident, the effectiveness of BoE’s response and the lessons learned for future contingency plans.

What this means for you

The whole economy depends on a reliable payment system. The effect of such a serious episode on one of the central pillars of the UK’s payment infrastructure was especially significant on a time-sensitive payment system that settles large deals. The cause of such a breakdown must be found and addressed in order for payment service users to regain confidence in the system.

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HM Treasury’s consultation outcome on cheque imaging

The HM Treasury has published the outcome of its consultation on the case for cheque imaging and the key legislative changes that are considered necessary to support its introduction in the UK. According to the consultation outcome, cheque imaging enables a wide range of benefits to consumers, businesses and the banking industry, including faster clearing times and greater customer convenience. The government is now introducing legislation in the Small Business, Enterprise and Employment Bill to enable the introduction of cheque imaging.

What this means for you

The outcome should be read by those with an interest in cheques and the operation of the cheque payment system. This includes banks, building societies and other payment service providers, businesses, trade bodies and consumer groups. Relevant parties may also be interested in the related Impact Assessments produced by HM Treasury and the Regulatory Policy Committee.

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