The U.K. preps for a major change to its payments infrastructure
If nothing else, no one could ever accuse U.K. regulators or market watchdogs of taking a hands-off approach to the country's payments operations.
In a move that some see as fairly radical, the country's Competition and Markets Authority has approved the consolidation of various payments operators and schemes into a structure called the New Payments Systems Operator.
The country's Payments Strategy Forum, set up by payments regulators, initially presented the idea for a single operator as a way to inject more competition and innovation into what some had viewed as a sluggish payments market.
The CMA's approval this week essentially consolidates operators of Bacs, the country's electronic debit and credit scheme; the Cheque and Credit Clearing Company Ltd., a group of the country's clearing banks; and the Faster Payments Scheme into the New Payments Systems Operator. CMA says it will soon release details of its decision to the public.
The New Payments Systems Operator concept comes at the same time the U.K. and other European countries are trying to wrap their arms around PSD2, another Payments UK directive designed to encourage innovation and competition.
The Payments Strategy Forum views consolidation as a way to lessen the burden of fees for use of the various payments schemes, and bring some unity to operations that currently operate under different rules.
But it won't be a simple switchover in which everyone backs an agreed-upon business case, said Gareth Lodge, a London-based industry analyst with Celent.
"The changes that the entire industry will have to make are going to be substantial, one assumes, with more than 100,000 business connecting into the system today directly, but not through their banks like in the U.S." Lodge said.
Before they accept these changes, the businesses and the banks alike will want to know the actual cost of the "problem" with the current setup, Lodge said.
"I'm not saying that there aren’t issues, but what does the ROI look like and for whom?" he asked. "The account switching service is a good case in point. More than 750 million pounds was spent building it, yet there has been no lasting change in the numbers switching accounts."
In that regard, there is a "real danger that this new platform will cost substantially more, yet we won’t actually see any competition as a result," Lodge added.
Naturally, the Payments Strategy Forum is more optimistic about its plans.
"The CMA’s timely decision is a key milestone to ensure delivery of the New Payments Systems Operator by the end of 2017," Hannah Nixon, managing director of the PSF, said in a statement released to media.
The consolidation should support one of the PSR’s key requirements to encourage increased choice of access and to develop common participation models and rules, Nixon said. "This should make it easier for banks, fintechs and other payment service providers to enter the market and compete effectively."
The consolidation is an important first step towards "a generational change" in U.K. payments, Nixon said.
The key will be the New Payments Architecture Design Hub, which will serve as the operator's hub for "dynamic competition and innovation in payments," she added. "Consumers will also benefit from the new entrants coming into the market and offering users of payment services new, innovative products."