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Industry must alter existing mindset to improve how payment systems work, says new regulator

Payment system operators must change their existing mindset to deliver reforms to the market that the new Payment Services Regulator (PSR) will seek to deliver, a senior official at the PSR has said.

From next April, the PSR will begin regulating selected payment systems in the UK under a new regulatory framework designed to open up competition in the market, facilitate innovation and better serve consumers.

In a recent speech, Hannah Nixon, managing director of the PSR, outlined what the new regulator wants to see payment system operators deliver under the new regulatory framework.

"At root, we want to see payment systems that work well for those who use them," Nixon said. "That means, we want to see an industry that: is focused on the needs of service users and end-customers; is innovative and open to both technological and commercial innovation; forges new partnerships to meet the challenges of the futures, and invests for the future with a strong focus on efficiency. Delivering that will mean a real mindset change on the part of industry."

Nixon said the PSR's approach to regulation under the new regime will be "focused on delivering the mindset and behaviour change needed". She said payment systems operators cannot continue with current practices as this "won’t keep up with the demands that consumers and users are placing on the system for new ways of doing things".

Under the new framework, the PSR will be tasked with promoting effective competition and innovation in payment systems and ensuring that those systems are operated and developed in the interest of business and consumer users of those systems.

The PSR will have the power to direct companies involved in a regulated payment system to take, or ban, "specified action in relation to the system" and "set standards to be met in relation to the system". The PSR will also be able to order payment system operators to allow rival companies access to their payment systems, among the other powers that will be at its disposal.

However, only payment systems designated by the Treasury will be subject to the PSR's regulatory regime.

Nixon said that the Treasury will shortly consult on which payment systems it intends to designate for regulation under the new regime and that it would ultimately decide the list of designated payment systems before the PSR assumes its regulatory role on 1 April 2015.

She said, though, that the PSR expects "the big UK interbank schemes and the major credit card schemes operating in the UK" to be placed subject to its regulatory regime by the Treasury. Nixon did not indicate whether she thought the Paym payment system, which facilitates mobile payments, or other mobile payment schemes would be placed within the scope of the PSR's regulation.

Nixon said that regulatory action it takes will be driven by economic factors but be evidence-based and "proportionate".

"We will initiate our own investigations where we have concerns or where we receive complaints," Nixon said. "Where appropriate and proportionate, we will take action. We will design a regulatory framework that promotes behavioural change by industry. It is industry that has the experience, expertise and resource to develop new solutions and ways of working, and to deliver them.  It is therefore important that industry finds these solutions and delivers them. We will hold industry to account for delivery. And if industry fails to respond, we will take swift action."

The PSR will have powers to fine businesses that fail to adhere to the new regulatory framework and can seek a court injunction barring payment system operators from being involved in the running of payment systems in extreme cases.

Nixon said that the PSR will consult in November on refining its regulatory approach, but said its plans would be focused on payment systems governance, access, infrastructure, innovation and "the appropriate boundaries for collaboration and competition".

"Our governance workstream is examining such issues as who makes decisions and how different stakeholders are represented," Nixon said. "On access, we are looking at the cost, choice and quality of access to payment systems, the access experience and contractual issues. On infrastructure, we are looking at issues around competition in infrastructure provision and the function infrastructure plays. On innovation, we are looking at how to ensure the industry is proactive in using its skills and expertise to identify and meet consumer needs, and doing so in a timely manner."  

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