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A new Payment Systems Regulator (PSR) report finds that access of payment service providers (PSPs) to interbank payment systems has continued to grow.
The Access and governance report on interbank payment systems identifies trends in account-to-account payments made on Bacs, Faster Payments, CHAPS and the cheque Image Clearing System (ICS) over 2019 and 2020.
The report finds that although PSPs are still showing interest in joining one or more interbank payment systems, they have done so at a lower rate.
In 2018 alone, 18 PSPs joined payment systems directly, whereas the same number of new joiners was spread across the two-year period in 2019 and 2020.
“This marks a slowing of the rate of growth,” the PSR said in the report while noting that there seems to be “continued interest in joining one or more interbank payment system as the slots made available for new PSPs in 2022 are already booked”.
The new report also reveals that new entrant indirect access providers (IAPs) have a growing customer base.
Since 2015, the number of IAPs has doubled from four to eight.
The new entrants — Modulr, LHV Pank, ClearBank and Starling — now provide access to more than 150 PSPs between them, alongside established IAPs Barclays, HSBC, Lloyds and NatWest.
New entrant IAPs often provide services to smaller PSPs and small money remitters, those that historically had the most difficulty gaining access, the report says.
By contrast, one of the established IAPs closed its services to new money service businesses (MSBs) following an internal review in 2017, and it withdrew access from several MSB customers. In 2020, the same IAP paused onboarding of all PSPs it considered high-risk.
“We’re continuing to see more participants joining payment systems, and some of those new joiners offer indirect access to other PSP... Although there was a levelling off of new direct participants over 2019-20, we expect to see more PSPs (such as banks and building societies) gaining access in the future,” Natalie Timan, head of strategy analysis and monitoring at PSR, said.
As is the case in many countries still, until recently, the UK payments infrastructure was open only to large financial institutions.
Although the Faster Payments New Access model launched in 2014 predates the official launch of the PSR, since it started operating in 2015 a key part of the regulator’s workload has been to improve and expand PSP access to payment systems. As a first step, it introduced directions enabling PSPs to access transfer and settlement systems through an account with Barclays, HSBC, Lloyds or RBS.
A new pre-funding settlement model was also introduced to Faster Payments in 2015, which removed a barrier to smaller challenger banks joining the scheme due to previous shared credit and settlement risks.
Another breakthrough came when the Bank of England announced in 2018 that it was extending direct access of non-bank PSPs to its Real-Time Gross Settlement system, a requirement for direct participation in schemes, such as Faster Payments.
The UK's access model has been touted in many countries as an example that underscores the importance of participation and open access in enabling PSPs to compete on a level playing field with the bigger banks and a solution that leads to greater innovation.
