How payments work affects the society we live in

Issue 108 | 28 March 2021

Welcome to issue 108 of Payments:Unpacked, get to grips with the UK’s retail payments landscape with Mike Chambers - exclusive payment insights, hot topic briefings and fundamentals unpacked.

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Payment Systems Regulator’s (PSR) Annual Plan and Budget

The Payment Systems Regulator (PSR) have published their Annual Plan and Budget for 2021/22.

The PSR state that their focus for the coming twelve months will be on work that will improve outcomes by encouraging competition and innovation where it is needed most and putting the interests of everyone who uses payment systems first.

By doing this, the PSR wants to see people and businesses benefit from more choice and exciting new ways to pay. 

Payments are essential to our day to day lives and underpins our economy

How payments work also affects the society we live in: the challenges faced by the vulnerable; how likely we are to fall victim to fraud; and how easily we can manage our money.

Behind these payments are several important payment systems. We rely on these systems to support markets, facilitate competition and drive innovation. This helps to deliver new products, find new ways to protect people from harm, and deliver services that give people and businesses more choice and control about how to pay and be paid.

We need the technology, the rules governing the use of these systems and the markets they support to all work well. This is where the PSR plays an important role – we regulate those systems, protect people and businesses, and promote competition and innovation in these systems and the markets that they support.

Chris Hemsley, Managing Director, PSR

Payment systems that are accessible, reliable and secure, and represent value for money.

The PSR’s annual plan and budget sets out the regulators key aims, activities and expected costs for the next twelve months. The plan is published to provide an overview of what the PSR is doing.

The PSR’s stated mission is that payment systems are accessible, reliable, secure and offer value for money. The PSR’s approach is designed to bring change to the payments industry, improving outcomes by injecting competition and innovation where it is needed most and putting the interests of the people and businesses that use payment systems first.

Key PSR 2021/22 projects

The twelve planned key projects for 2021/22 are:

Competition from interbank retail payments *new*

Ensuring that customers benefit from innovations through being able to access a choice of payment methods which meet their needs, and which are delivered to merchants at competitive costs, as this is likely to ultimately affect the prices customers pay.

Growth in the use of interbank payments has the potential to offer more choice, support innovative new products and inject competition into payments markets. However, there are a number of technical and commercial challenges that might limit the role that interbank plays. We will launch a new piece of work to understand the potential for interbank payments to increase choice and competition. We’ll look at the opportunities and risks, issues and barriers to this happening, and the likely impact on people making interbank payments at the point of sale.

PSR

Consumer protection

Developing consumer protection measures that benefit consumers and businesses, so that they feel safe and secure making a payment directly from one account to another.

We want to make sure consumers have enough protection when they make a payment from one bank account to another using interbank payment systems – particularly Faster Payments. Our main objective is to ensure that consumers and businesses are not disproportionately affected when something goes wrong with their payments. This work focuses on the current use of Faster Payments, including the likely growth in use through Open Banking services. Our work on interbank payments has linkages with this work but is focused on longer-term reforms that might increase competition in payment markets.

PSR

Authorised push payment (APP) scams and Confirmation of Payee (CoP)

Ensuring that scams are reduced, victims are protected and financial fraud is tackled by coordinating efforts and sharing information.

Authorised push payment (APP) scams – when someone is tricked into sending money to a fraudster posing as a genuine payee – pose significant harm to consumers. Working to prevent these scams and get the right outcomes for victims is a priority for us. We’ll play an active role both in reducing fraud and in working towards a comprehensive approach to protecting victims of APP scams.

PSR

New Payments Architecture (NPA)

Ensuring that the NPA delivers a resilient way of making digital payments. Encouraging competition and innovation that is in the interests of merchants and consumers.

The New Payments Architecture (NPA) is the UK payments industry’s proposed new way of organising the clearing and settlement of interbank payments - payments transferred directly from one bank to another. It’s strategically important as it has the potential to lead to more competition and innovation in payment services – something that is vital to the interests of those who use payment systems. We’ll continue to oversee Pay.UK’s work to facilitate delivery of the NPA, and we’ll take action where needed to ensure the NPA is resilient and delivers good outcomes for people and businesses.

PSR

Access to cash

Ensuring that those who need to can continue to access and use cash from the ATM networks.

People’s ability to get access to cash has been significantly affected by COVID-19, with restrictions reducing ATM availability and usage. Over the past 12 months, cash use has declined at a faster rate than in previous years. This has coincided with increased use of digital payments, but cash continues to be of critical importance to a significant number of consumers. It therefore remains important that people and business have good access to cash, and that this access is maintained across the UK. Reflecting this, we’ll continue to support the cash needs of both UK consumers and small businesses, through our regulation of LINK and support for the wider cash system.

PSR

Interchange Fee Regulation (IFR)

Ensure that card systems and participants comply with the IFR, which aims to reduce costs for merchants and supports competition.

The IFR caps interchange fees on UK consumer debit and credit card transactions, and also contains a number of business rules. We’re the main authority for the IFR in the UK, and we have published guidance on our approach to monitoring and enforcing the IFR.

PSR

Card acquiring market review

Ensuring that the market for card-acquiring services works well, so merchants and ultimately get a better deal.

We’re carrying out a market review into card-acquiring services and we intend to finish it this year. Every time somebody makes a card payment, the merchant uses card-acquiring services to accept it. These services are critical to the UK economy because they enable consumers and businesses to use their cards to pay for goods and services. The crucial role card-acquiring services play in the payments sector means it’s important that they work well for merchants and consumers.

PSR

Sector intelligence and analysis

Ensuring that the PSR has the right intelligence and analysis to mitigate risk, prioritise its workforce and resources.

It is important to have good quality intelligence and analysis about payment systems and the markets they support, including on the impact of key payment trends. We already rely on good quality data and analysis to inform our policy development and to decide when and how to intervene. Having delivered on many of our initial priorities, we are now focusing on formalising our strategy for the next three to five years. As part of this, we are investing in developing our information-gathering and analysis approach, working with others where we can. This will help us remain across, and ahead of, the rapid changes in the market, technology and people’s choices. With this, we can better plan our work and understand the diversity of issues affecting people and businesses. This work will help us choose the issues we tackle and how best to intervene to improve outcomes.

PSR

Strategy

Ensuring that the PSR’s stakeholders are clear on the regulators long term focus and that the PSR’s ongoing work supports the desired long term outcomes.

We are aiming to publish our final strategy document in Q3 2021. The strategy will lay out our objectives, priorities, and areas we aim to focus on over the next three to five years. This will provide our stakeholders with a good understanding of our work and approach and help them understand why we make the decisions we make – for example, what work we prioritise.

We will continue to work to ensure that:

  • Everybody has access to payment services that meet their needs in terms of functions, quality, cost and other factors.

  • Users’ interests are adequately protected when using payment services so that they use systems and services with confidence.

  • Payment systems are designed and operated to enable effective competition in the provision of payment services.

  • Payment systems are efficient and sustainable.

PSR

Access monitoring

Ensuring that Payment Service Providers (PSP’s) can access payment systems in order to offer payment services. Reducing unnecessary barriers to direct and indirect payment systems, to produce better choice of payment services for users.

PSPs need access to payment systems in order to offer payment services. We work to make sure access is fair and open, and monitor and compliance with regulations and directions on access.

PSR

Crisis communications *new*

Ensuring that disruptions are managed effectively and don’t cause unnecessary interruption to customers, businesses and other payment system, operators.

Our work includes focusing on whether payment systems are operated in a way that promotes the interests of all the businesses and consumers that use them. This includes considering whether those systems deal with disruption to their operations in a way that reduces the impact on people and businesses. This work sits alongside that of the Bank of England, which has principal responsibility for promoting resilience of payment systems. In this context, we continue to oversee the compliance of Visa Europe (Visa) with our Specific Direction 9 (SD9), which requires Visa to ensure it gives its participants, stakeholders and service users enough information in the event of a major incident.

PSR

Cryptocurrency *new*

Ensure that ant crypto asset or stablecoin which acts as a payment system is developed in the interests of those using it.

Cryptoassets and stablecoins are digital currencies which use cryptography and are often underpinned by distributed ledger technology. In recent years, these digital currencies have become increasingly prevalent due to advances in technology. There is also growing interest among consumers and businesses. We’re working with other authorities to make sure the UK has the right regulatory approach.

PSR

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Other activity

The PSR’s annual plan also outlined the following activity:

  • Supporting the Treasury led reviews on the Payments Landscape Review and the Future Regulatory Framework Review.

  • Competition case work.

  • Regulatory enforcement where the PSR have powers to take regulatory action in relation to:

    • directions and requirements (general or specific) given/imposed under the Financial Services (Banking Reform) Act 2013

    • the Interchange Fee Regulation (IFR) and directions (general or specific) under the Payment Card Interchange Fee Regulations 2015

    • the Second Payment Services Directive (PSD2) and directions (general or specific) under the Payment Services Regulations 2017 (PSRs)

    • requirements imposed by or under the Payment Accounts Regulations 2015 (PARs).

  • Working with other authorities - Bank of England and the Financial Conduct Authority.

  • Working with the PSR Panel which provides advice and input on our general policies and practices, as well as highlighting emerging issues arising in the wider payments landscape.

2021/22 Budget

The annual plan includes the following budget graphic:

Source: PSR

Download

This newsletter provides a short précis of the PSR’s plan for 2021/22 - download the full plan and budget at:

PSR 2021/22 Annual Plan & Budget

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The Payments:Unpacked newsletter from Mike Chambers at Northey Point explores a wide range of the UK’s payment news including: Open Banking, Request to Pay, Direct Debit, Confirmation of Payee, Bacs, CHAPS, Faster Payments, LINK, cash, cards, cheques and Central Bank Digital Currencies (CBDCs) and unpacks the eco-system that supports the operation of these systemically important payment systems.

The newsletter is an independent and informed insight into the UK’s payments landscape – exclusive payment insights, hot topic briefings and fundamentals unpacked.

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Mike