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The UK’s Payment Systems Regulator (PSR) has opted to revoke Specific Direction 2 (SD2) and Specific Direction 4 (SD4), with the changes due to come into force in late August 2025.
The two longstanding rules require competitive tenders for core payment infrastructure contracts, but the PSR believes that market and policy developments have overtaken their purpose.
Specific Direction 2 (SD2), along with its amended form, SD2a, obliges the operator of the Bacs payment system to run a competitive procurement process for central infrastructure services.
The PSR said the decision to revoke the measure follows the National Payments Vision’s (NPV) call for the regulator and the Bank of England to reassess retail payments infrastructure requirements and improve governance and funding arrangements.
The move also reflects progress under the Payments Vision Delivery Committee’s latest proposals, which outline an “innovative new model for delivering the next generation of UK retail infrastructure”.
The regulator said removing SD2 will provide “the necessary space and certainty for that work to progress”.
Meanwhile, Specific Direction 4 (SD4), and its variation SD4a, imposed similar obligations on LINK, the UK’s main ATM network.
Following a consultation period, the PSR, which faces being absorbed by the UK’s Financial Conduct Authority (FCA), concluded that the cost of mandating a tender process was high and that there were few potential bidders for the contracts.
A new vision means a new direction
The PSR’s decision to revoke SD2 and SD4 is a sign of the UK’s payments regulator overhauling its oversight, and may be an admission that these SDs failed to achieve their aims.
The move could bring several benefits for the UK’s retail payments infrastructure. For example, removing the mandatory tender requirements gives the PSR, the Bank of England and the Payments Vision Delivery Committee more flexibility to explore alternative models for next-generation infrastructure without being constrained by a set of rigid procurement cycles.
The change could also reduce costs for operators.
Competitive tenders for central infrastructure are expensive for both the operator and potential bidders, and the PSR’s consultation on SD4 found that costs were high and there was limited competitive interest.
Lifting this obligation ultimately removes unnecessary expenditure and allows resources to be redirected towards potential upgrades and pathways to innovation.
It may also provide greater certainty for stakeholders. For example, without looming tender obligations, existing operators, technology providers and the wider payments ecosystem can work with more stability as the new infrastructure model is developed.
This should make way for faster decision-making, and strategic choices on technology or governance can now be made in line with the NPV’s timetable, rather than being delayed by lengthy procurement processes.
