Following the release of the interim report earlier this year, the Payment Systems Regulator (“PSR”) has published its final report on its review into the ownership and competitiveness of payment systems infrastructure in the UK. The final report has concluded, in line with the interim report, that there is no effective competition for the provision of UK payments infrastructure.

The final report also expands on potential remedies which will be developed and evaluated over time, including the divestment of VocaLink, the infrastructure provider shared by the three principal interbank payment systems – Bacs, Faster Payment Service (FPS) and LINK (the “Schemes”). Feedback from stakeholders forms a substantial part of the final report.

The purpose of the review is to encourage competition, innovation and increase the quality of service in the industry.

Remedies and Divestment of VocaLink

According to the final report, operators and direct payment service providers (“PSPs”) are satisfied with the value for money, quality of service and innovation they receive from VocaLink, but the limited competitive pressure facing VocaLink did not incentivise further innovation and competitive procurement processes. There was some concern over the level of control the major shareholders held over VocaLink.

As outlined in the interim report, the PSR outline the following areas for remedy (to be taken as a package) accompanied by stakeholder views:

  • The divestment of VocaLink. The majority of stakeholders believed that this would promote competition in the provision of central infrastructure services, being mindful of the need to maintain stability and security.
  • Competitive procurement processes for the Schemes. Half the stakeholders questioned, mostly smaller PSPs but also two of the largest, were in full support of competitive procurement.
  • Enhanced interoperability and international messaging standards. The majority of stakeholders supported or partially supported this measure as it can promote competition and innovation and better meet users’ needs.

The industry has been proactive in addressing the PSR’s suggestions, with VocaLink’s sale to MasterCard, subject to regulatory approval, for a reported US$1 billion. The PSR recommended in the interim report, and emphasised in the final report, that the four banks controlling 80% of VocaLink should divest their interests. The PSR iterates its view that this sale could alleviate the competition issues.

Payments Strategy Forun (the “Forum”)

The final report goes into more detail on the Forum, to which the market review was aligned to further promote competition and increase collaboration in the interbank systems space. The Forum’s draft strategy has proposed to:

  • Introduce solutions aimed at greater control, assurance and enhanced data quality in data systems.
  • Introduce a common messaging standard.
  • Consolidate the Schemes so that they are managed under one entity.
  • Institute a governance entity to oversee and set application programming interfaces.
  • Use payment systems to address financial crime, data and security concerns.

There are early signs that the industry may be opening up to competition. TransferWise, a peer-to-peer money transfer platform, was recently granted access to the UK FPS, enabling the startup to process money sent to and from UK bank accounts instantly and 24/7, without being susceptible to bank inactivity.

The PSR has set a deadline of 22 September 2016 for any responses to the final report and plans to actively engage with stakeholders to design and implement the remedies. Following this, a consultation on the draft remedies decision will be issued. Importantly, the PSR recognises that the current structure of PSP, operator and infrastructure provider may evolve, and the remedies do not intend to preclude such development. A final decision on remedies is expected in early 2017.

Comments can be made to the PSR via email by 5pm 22 September 2016, to