PSR review of indirect access to payment systems

Key issues

In furtherance of its statutory objectives, the PSR published final terms of reference in May 2015 outlining its decision to proceed with a market review looking at the supply of indirect access to payment systems and whether competition in this area is working well for service-users. It published an interim report in March 2016 outlining its interim findings and proposed next steps for the market review.

The importance of access to payment systems

The PSR stated that for banks, building societies and other payment service providers (PSPs) to operate, they need to be able to move money between accounts. In order to do this, they need access to a payment system - this access can either be direct or indirect. Indirect access is the ability to send and receive payments through a third party, for example another bank. The ability to move money between accounts is vital for PSPs and thus considered a key enabler of competition and innovation in the payments and banking sectors.

Market review

The PSR’s final terms stated that during the review it would explore the extent of concerns raised by stakeholders about indirect access - in particular, in relation to the limited choice of indirect access providers (IAPs) in the market and the fees charged for indirect access.

The PSR’s interim report sets outs the following interim findings:

• the PSR has already taken a number of steps to promote better choice in access services and to improve service quality
• the PSR is opening up direct access to interbank payment systems so that larger PSPs have a real choice between direct and indirect access
• the PSR has made entry easier by increasing the amount of information available to PSPs and by supporting the industry Code of Conduct to improve direct access, and 
• the Payment Strategy Forum is also considering how payment systems can be developed to allow simplified access for PSPs.

The PSR also felt that there are a number of developments underway or expected in the industry which should allay stakeholder concerns and provide greater access for PSPs. These include:

• market entry and expansion: the PSR has been working with a number of businesses that are planning to start offering indirect access or expanding their current services to bring more choice to PSPs that require these services
• reviews of financial crime regulation: these reviews are aimed at improving transparency, clarity and effectiveness of the UK’s anti-money laundering and counter terrorist financing framework, and 
• improved access options: emergence of alternative access models for interbank payment systems, including development of aggregator arrangements for the Faster Payment Service (FPS).

The PSR invites comments on its interim findings and proposed remedies by 05 May 2016.

Looking forward

As a result of the above developments the PSR is choosing to support these and monitor their impact rather than take immediate regulatory action. However, it stated that if its concerns are not addressed in the next 12 months then further action will be taken. A final report is expected to be published in Summer 2016.