In what some may find as a role reversal, UK’s Payments Systems Regulator is nudging the small cluster of banks that manage much of the country’s payments processing and ATM network to apply some free market principles to their industry.
Banks should loosen their grip on the way payments are processed, to pave the way for more innovation and competition, a regulator has suggested.
The Payment Systems Regulator (PSR) made its provisional findings in a market review into the ownership and competitiveness of the infrastructure that supports Bacs, which processes direct debits and credits; the Faster Payments System (FPS), which processes internet and telephone banking payments; and cash machine network Link.
These systems are owned by a “relatively small” number of banks, which also control VocaLink – the central system that processes more than 90% of salaries, over 70% of household bills and almost all state benefits in the UK, the regulator said.
It said evidence indicates that the common ownership of the infrastructure provider by a small number of banks is having a negative impact on innovation and competition in the industry.
Its report said payment systems, which support the services that enable money to be transferred between people, businesses and institutions, “form a vital part of the UK’s financial system as they can contribute to the country’s financial stability and economic growth”.
The PSR is inviting feedback and its consultation will remain open until April 21.
It’s not surprising that oligopolistic market players enjoy a lack of competition, and use regulatory policies and procedures as a barrier to new entrants. Usually, these restrictive markets keep transactional fees and prices higher that they would be otherwise. Longer term, the select few discover one day that they cannot adapt and respond quickly enough to the inevitable forces of change and disruption. Then it’s too late and they realize they should have thrived on free market competition rather than cowered from it.
Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group
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