On 12 July 2017, the Competition and Markets Authority (CMA) approved the consolidation of the operators of Cheque and Credit Clearing Company, Faster Payments and Bacs into a new payment systems operator (NPSO). This consolidation was one of the key recommendations in the PSO Delivery Group's (PSODG) Report of 4 May 2017.
The decision of the CMA to approve the creation of the new entity comes against a backdrop of fast-paced change in the payment systems sector in recent years. This has included: the recognition of a number of payment systems as systemically important under the Banking Act 2009, requirements to see increasing independence at board level of operators and the establishment of a new competition-focused payment systems regulator in 2015 (the PSR).
The need for a consolidated operator
In November 2016 the Payments Strategy Forum (PSF) – established by the PSR as an industry-wide strategy setting forum to "unlock competition and innovation in payments" – issued a strategy for payments in the UK. Its vision was to meet the needs of current and future payments service users by:
- providing simpler access;
- ensuring ongoing stability and resilience;
- encouraging greater innovation and competition; and
- enhancing adaptability and security.
The strategy identified a number of issues which were standing in the way of this vision and corresponding solutions to resolve them.
One issue identified by the PSF was the number of payment systems in the retail payments sector, resulting in unnecessary complexity, increased costs for participants, and inefficiencies (as a result of duplication across the systems). It was felt that as a consequence this also presented a barrier to direct entry for PSPs restricting competition in the downstream market. The PSF's solution was the consolidation of the operators of Bacs, Cheque and Credit Clearing Company and Faster Payments, into one entity.
The delivery plan
To implement this consolidation, the Payment System Operator Delivery Group (PSODG) was established to put forward a delivery plan for consolidation. The PSODG set out in its report the following key recommendations:
- an NPSO should be incorporated with the existing three operators which are to be consolidated sitting underneath;
- the company purpose of the NPSO should be to "support a vibrant UK economy enabling a globally competitive payments industry through the provision of robust, resilient, collaborative retail payments services, rules and standards for the benefit, and meeting the evolving needs, of all users";
- the NPSO should be a company limited by guarantee with its initial members/guarantors being the current members of the payment systems which are to be consolidated (it is anticipated that the guarantor group will be expanded going forward to reflect other relevant stakeholders);
- there should be a staged transition of responsibilities to the NPSO from the operators;
- all decision-making powers in relation to the NPSO should rest with the board, to comprise 50% or more independent directors and no "member appointed" directors (although there would be a general right for members to vote on re-appointment of directors of NPSO); and
- the funding model (based primarily on transaction fees) should give the NPSO the ability to both build-up surplus funds (for re-investment) and seek capital funding for specific development projects, allowing funding decisions to be made independently of members by the NPSO Board.
The response of the PSR and BoE
The PSR and the Bank of England published a letter which welcomed the report, set out their expectations of next steps and extended the remit of the PSODG to establish the NPSO corporate entity and oversee the initial stages of the implementation plan.
Following the decision of the CMA, the PSODG is now aiming to have responsibility for the execution of the implementation plan handed over to the NPSO by the end of July 2017, with a consolidated entity substantially completed by the end of 2017.
This is an update to an interview with Charles Buckworth which was published by Lexis®PSL on 6 June 2017