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In its new five-year strategy, the Payment Systems Regulator (PSR) sets out its vision of how the UK payments landscape should look and the path needed to get there.
The new PSR Strategy lays down four desired outcomes that the regulator wants to see and will work toward within the next five years. These include setting key outcomes, such as payment systems that meet people’s needs, a landscape where users are protected, effective competition in payments and efficient payment systems.
To help these outcomes materialise, the PSR has said it will prioritise its efforts to focus on four strategic priorities: access and choice; protection; competition; and “unlocking” account-to-account payments.
Access and choice
Under its first strategic priority, the PSR seeks to ensure users have continued access to the payment services they rely on and support a choice of payment options.
The regulator is committed to ensuring payment services are accessible on a fair, open and transparent basis.
It promises to support the development of new payment services while continuing to protect access to cash, which has been a growing concern in recent years. Although the use of physical money continues to decline year-on-year, legislators and regulators acknowledge that it is often used by the most vulnerable.
This is in line with the UK parliament, which has said it is committed to legislating to protect access to cash. This also follows a consultation on this topic by HM Treasury last year, while in December, ATM network operator LINK extended its Cash Without Purchase pilot, which allows customers to access cashback services from retailers.
Shortly afterward, LINK also announced a retail bank collaboration to expand its trial of new shared banking hubs, which could provide a solution to concerns that the increasing speed of bank branch closures leaves the most vulnerable without access to cash.
Protection
To ensure people and businesses are protected, the PSR said it will develop governance of interbank rules, with a view to giving Pay.UK a stronger role to lead the development of protections.
At the same time, the regulator said it will work to make sure that victims of authorised push payment (APP) scams get fair reimbursement from banks.
APP fraud has grown to be a huge concern of regulators lately. In the first half of 2021, the number of APP scams reached record levels, with the PSR noting a 71 percent increase in this type of scam, causing consumers £355m in losses, and overtaking card fraud losses for the first time.
One of the key tools to fight fraud is Confirmation of Payee (CoP), which alerts consumers in case the recipient's account name does not match the name of the intended beneficiary.
The PSR concluded a review of the first phase of implementation of CoP in October and is consulting on further measures ahead of moving to the second phase.
Meanwhile, in November, consumer association Which? pointed out that although many banks signed a voluntary code to reimburse APP fraud victims, they tend not to do so.
Shortly afterward, the PSR opened a consultation, proposing mandatory reimbursement for victims of APP scams.
The regulator now says it is consulting “on two ways of achieving this so that, when legislation is changed to allow this, we can act quickly to bring about the right outcomes”.
Competition
The strategy states it is “not clear that there is sufficient competition in retail payment methods to provide good long-term outcomes”.
“So far, we’ve focused on encouraging competition within payment systems between different payment service providers. Going forward, we want to focus our resources to promote competition between payment systems.”
Therefore, the PSR will work to make sure the interbank systems provide greater competition for the provision of payment services.
It will also take forward a piece of work to examine the basis for scheme fees and cross-border interchange fees.
Cross-border card fees have grown significantly following Brexit. Last year, both Mastercard and Visa increased cross-border interchange fees for debit and credit card transactions, from 0.2 percent and 0.3 percent to 1.15 percent and 1.5 percent respectively.
“We’ll consider whether shorter-term measures might be appropriate in the intervening period until we develop and implement any longer-term measures to introduce more competition,” the summary of the strategy says.
The PSR’s role, and success, in protecting consumers from high fees will be one of the topics to be discussed by the Treasury Select Committee in March, at the accountability hearing with the leadership of the PSR.
Unlocking account-to-account payments
As part of this strategic priority, the PSR aims to ensure “the interbank systems provide infrastructure, rules and incentives that foster innovation and competition”.
The New Payments Architecture (NPA) is intended to modernise and future-proof the UK’s retail payments infrastructure by replacing the current Bacs and Faster Payment systems.
Pay.UK was established in 2017 for the purpose of delivering the NPA, but continuous delays in the delivery of the infrastructure and repeating PSR interventions have caused some to question its ability to carry out the project.
In mid-December, the PSR published a regulatory framework for the NPA, laying out requirements for both Pay.UK and any future central infrastructure provider to address risks, and promote competition and innovation.
In its five-year strategy, the PSR reiterates that the NPA should encourage competition and innovation and says “Pay.UK should be funded so it can promote good outcomes for everyone”.
