Belated action?
The UK government has announced the creation of a new, utilities-style regulator charged with increasing competition in the payments sector. The government is determined to empower smaller firms to challenge the big banks to deliver real benefits for each and every user of financial services.
The payments system is at the heart of the financial sector – every time someone uses a cash machine or pays for something on their card, they are using it. 17.5 billion non cash payment transactions took place in the UK last year.
The reforms, which will be implemented via amendments to the Banking Reform Bill, will ensure that new players can access payment systems in a fair and transparent way, competing with them on a more level playing field.
The new regulator will sit under the FCA, taking advantage of its existing regulatory and financial services knowledge and relationships. It will have a specific objective to promote competition in the banking sector and will be able to:
- Order changes to how payment systems such as Faster Payments or Bacs operate
- Make it cheaper for smaller banks to access payments systems
- Investigate and impose fines or other sanctions when rules are broken
The government’s response to its consultation, Opening up UK payments, has also been published today. It lays out the government’s plan to reform the governance of the current payments systems to deliver one that works for all users and ensures better results for the end consumer.
View the government’s response to its consultation ‘Opening up UK Payments.
At the moment, a number of large banks ‘own the system’ and dominate the industry at every level. For example, smaller firms have to pay the big banks to access key services and the incumbents have the power to block access or charge unfair fees to smaller competitors.
The government wants the new regulator to help remove the barriers for new entrants, increasing competition, incentivising all market participants to improve services and reducing fees for consumers.
This has the potential to deliver real improvements in how people get to use the payments system. For example:
- In Sweden, splitting the bill in a restaurant is much easier than in the UK – without knowing their friend’s account details people are able to pay them back via text message.
- In the Netherlands, people can pay online without needing to enter card or account details
- The regulator will also be tasked with ensuring that the needs of consumers are fully taken into account. Many people will remember the Payments Council’s unpopular decision to scrap cheques – which the government pressured them to reverse. No longer will decisions be made that serve the big banks’ interest and not the people of this country.
Financial Secretary to the Treasury, Sajid Javid said: “The government is determined to open up competition in the banking sector so that it serves the needs of the British economy, businesses and customers. An open and transparent payments system is crucial to give new players freedom to challenge the big banks without unfair barriers. The reforms we are announcing today will encourage innovation, ensuring that real benefits are passed onto each and every user of financial services.”
Whitepapers
Related reading
Central banks best suited to issue digital currencies
By Aaran Fronda A recent report by the Official Monetary and Financial Institutions Forum (OMFIF) said that central banks rather than private ... read more
Instant payments: innovations inbound for corporates
In 2020, instant payments look set to continue their current trajectory to become the biggest trend in payments. While these schemes already offer numerous benefits to corporates, leveraging innovations such as APIs and request to pay will go some way to unlocking their full potential, argues Michael Knetsch
Obstacles exist for banks to meet ECB’s instant payments goal
The cost of joining instant payment platforms will be one of many hurdles banks and payment services providers must overcome to meet ... read more
Banks must be aware of “biases” in data used to train ML models
Financial institutions need to be conscious of biases in the historical data that is being used to train machine learning (ML) models, ... read more
