Ten things you need to know about the Payment Systems Regulator's new plan
Issue 301 | 1 April 2022
Ten things you need to know
At just over 60 pages there is a lot in the Payment Systems Regulator’s 2022/23 annual plan and budget. You’ll find the full document here: PSR Annual Plan 2022/23 and a short factsheet here: PSR Annual Plan 2022/23 Factsheet.
To whet your appetite ahead of reading the PSR’s annual plan here are the ten things you need to know about the Payment Systems Regulator's new plan1 :
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1: The PSR has four key priorities
People must be able to make and receive different kinds of payments safely and confidently. This means stopping scams from happening and better protecting people if they do fall victim.
But fraud like this is still growing, and there’s more to do. We’re consulting on requiring banks to publish their own APP scams statistics, so customers can see how their bank compares to its competitors – to shine a light on how well each bank is doing, and which ones can do more to
reduce the harms caused by these crimes. We’re taking steps now to prepare for proposed legislative changes that will allow us to require banks to reimburse victims who haven’t done anything wrong. And we’ll monitor the transition of CoP to a single technical environment following our direction in February – this should let more banks offer the service to their customers.
Competition in payments can improve outcomes for people and businesses by stimulating innovation, improving services and lowering prices. This is one reason we focus on making sure conditions are right for competition – both now and in the future. Another example here is our work to improve how competition works in the provision of card payment services to merchants. Following our market review of card-acquiring services, we’re looking at ways for merchants to easily compare and switch providers – another way we can use competition to improve services, and to lower fees that will often be passed on to consumers.
As part of our market review, evidence was provided which showed that scheme fees had increased significantly between 2014 and 2018. These changes, in combination with recent increases in cross-border interchange fees, raise questions
as to whether there are sufficient competitive constraints on card schemes. We’ll be examining the basis for these fees and considering the impact of recent changes.
We’re also taking steps to support the development of effective competition over the longer-term. We’re actively monitoring Pay.UK’s programme to deliver the NPA. As Pay.UK takes this work forward, we’re focusing on making sure that the NPAencourages competition and innovation in the interests of people and businesses, and that Pay.UK has put sufficient focus on facilitating payment service providers to compete for customers. This should lead to a good choice of payment services for everyone.
Unlocking account-to-account payments
A particular focus for us in the next few years will be looking at how account-to- account payments could provide competition for debit and credit card payments in retail. The increasing use of online shopping, and mobile and contactless payments in-store, means that more and more payments are being made through the card payment systems. Account-to-account payments are direct transfers from your account to the retailer’s account that don’t involve a debit or credit card. Making these payments a realistic alternative for shoppers should put competitive pressure on the card systems, and make sure their fees and services remain fair and suitable for the people using them.
Access and choice
It’s essential that people and businesses can use the payment services they rely on and have an effective choice of payment options, including both cash and digital payments. We’ve been working with the Financial Conduct Authority (FCA) to ensure that cash, and the infrastructure that supports it, remains available for those who need it. This joint working reflects the links between our separate roles – the FCA’s role in supervising bank branch closures, and our role overseeing the LINK ATM network. There are important changes under way as industry rolls out shared community banking hubs and cashback without purchase, and the government introduces legislation to give the FCA lead responsibility for cash access. These are welcome developments. We’ll continue to monitor LINK’s work maintaining the UK’s free-to-use ATM network, so people can access their cash when they need to.
We’re also exploring what might unlock digital payments for more people and businesses. We commissioned the PSR Panel to explore this issue, and will shortly receive its analysis of potential barriers to people using digital payments. We’ll then consider what action we’ll take to drive the development of digital services that better address people’s needs.
2: The PSR recognise the importance of engagement
We value the conversations we have with our stakeholders. In addition, we’ll continue to organise stakeholder engagement opportunities in the form of workshops, roundtables and webinars to listen to our stakeholders and maintain our strong relationships with them.
We’ll also use these opportunities to continue to make new relationships, and strengthen the partnerships we have with other authorities and regulators.
Engaging with those we regulate and those who our work affects is an integral and essential part of what we do – from sharing the latest PSR news and publishing policy documents, to getting out into communities to hear people’s real-life experiences and learn about how payments work for them. This year, as the world continues to recover from the pandemic, and new behaviours and technologies emerge, this will be more important than ever.
3: The PSR are an economic regulator
We’re an economic regulator, created by the Financial Services (Banking Reform) Act 2013 (FSBRA). This sets out our statutory
duties, the regulatory principles we must follow, and our regulatory and enforcement powers. It also sets out our three statutory objectives:
Our service-user objective: Ensure that payment systems are run and developed in a way that takes account of and promotes the interests of those that use, or are likely to use, services provided by them.
Our competition objective: Promote effective competition in the market
for payment systems and markets for services provided by payment systems in the interests of those who use, or are likely to use, services provided by them.
Our innovation objective: Promote the development of, and innovation in, payment systems in the interests of those who use, or are likely to use, services provided by them.
These objectives are the basis of everything we do in our role under FSBRA.
4: There are a wide range of designated payment systems and participants
Under FSBRA, the Treasury has designated seven payment systems for regulation by the PSR:
Cheque and Credit
Mastercard and Visa
System Operators such as Pay.UK, Visa, Mastercard and LINK
Payment Shrive Providers such as banks and building societies.
Infrastructure providers such as Vocalink.
5: The PSR’s role covers competition, access and oversight
We’re a competition authority with functions in relation to participation in payment systems concurrent with specified functions of the Competition & Markets Authority (CMA).
We also have powers which allow us to advance our competition objective.
We’re the lead competent authority for the Interchange Fee Regulation (IFR). The IFR mainly imposes requirements on payment card schemes and issuing and acquiring PSPs.
We regulate operators of designated alternative switching schemes under the Payment Accounts Regulations 2015 (PARs) – this presently includes the Current Account Switch Service (CASS).
We’re a competent authority in relation to certain provisions of the Payment Services Regulations 2017 (PSRs 2017). These provisions concern access to payment systems2, access to certain payment account services, and information on ATM withdrawal charges.
6: The PSR has a wide range of powers
We have a range of powers under FSBRA, in particular in relation to regulated payment systems. These include:
providing directions, both generally and specifically in relation to participants
changing or establishing rules regarding the operation of payment systems
granting access to certain regulated payment systems
varying agreements relating to payment systems
requiring the disposal of interests in an operator of a regulated payment system or an infrastructure provider in relation to such a system.
We have powers to review, investigate, enforce
and direct in connection with our monitoring and enforcement roles under the IFR and the PSRs 2017.
We have powers under the Competition Act 1998 (CA98) in relation to participation in any payment system, including systems which aren’t designated as regulated payment systems under FSBRA.
We can conduct market studies and make market investigation references under Part 4 of the Enterprise Act 2002 in relation to participation in any payment system.
The PSR has powers to take regulatory enforcement 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 2017)
requirements imposed by or under the Payment Accounts Regulations 2015 (PARs).
7: The 2022/23 Annual Plan is consistent with the PSR’s five year Strategic Plan
The PSR are seeking to achieve four strategic outcomes:
Everyone can make and receive payments in ways that suit them.
People and businesses are protected when they make payments.
Effective competition in payments leads to better services for everyone.
Payment systems are efficient and commercially sustainable.
The 2022/23 programme is aligned to the Strategic Plan and the desired outcomes:
8: The PSR will achieve their desired outcomes through a variety of projects
The 2022/23 Annual Plan details the following projects that will be the vehicles to deliver their desired outcomes:
Account-to-account retail payments and card fees
Desired outcome: Account-to-account payments become a realistic alternative to credit and debit cards. This should mean more competition between systems, giving people more choice and improved services. Any potential harm arising from card fees is identified and addressed as appropriate.
Authorised push payment (APP) scams
Desired outcome: APP scams are reduced, victims are protected, and financial fraud is tackled by coordinating efforts and sharing information.
Confirmation of Payee
Desired outcome: As many people as possible are able to use the CoP name-checking service, to reduce money lost through fraud and accidentallymisdirected payments.
New Payments Architecture
Desired outcome: The NPA provides a resilient way of making account-to-account payments, and encourages competition and innovation in the interests of merchants and consumers.
Future of cash
Desired outcome: People are able to get access to cash so that everybody has ways of making payments which meet their needs
Card acquiring market review
Desired outcome: A market for card-acquiring services that works well – so merchants and, ultimately, consumers get a better deal.
Cryptoassets, stable coins and CBDCs
Desired outcome: Any cryptoasset or stablecoin that acts as a payment system is developed in the interests of those using it.
9: The PSR maintains a close relationship with other key authorities
The PSR works closely with the Bank of England (the Bank) and the Financial Conduct Authority (FCA) to coordinate regulatory activities.
10: The PSR’s costs are rising
The PSR’s annual budget for 2022/23 reflects the anticipated operating costs from 1 April 2022 to 31 March 2023. The PSR estimates that their current regular costs to be approximately £20 million a year; which will cover work already in progress and the new work they wish to begin in the immediate future.
The budget will allow the PSR to increase its headcount as needed to carry out the Strategy, taking staff numbers to around 138 full-time staff.
To account for the greater staffing levels, in 2022/23 the PSR will increase their Annual Funding Requirement (AFR) by 2% above inflation, and then rely on our reserves up to a maximum of £2 million, with the latter minimising the burden on fee payers.
The PSR state that this will enable them to regulate for a robust payments industry in the future.
Payment systems play a vital part in all our lives
In his introduction to the annual plan Chris Hemsley states:
Payment systems play a vital part in all our lives. They help us get paid and pay for the things we need – like our groceries, bills or travel. As the UK’s specialist regulator for payment systems, our vision is for payment systems to work well for everybody.
On the whole, the UK’s payment systems work well. We’ve seen how resilient, convenient and essential to everyday life they’ve been during the COVID-19 pandemic, when many people needed to rapidly change the way they paid for things. However, there are a number of important issues we need to address, be it the prevalence of fraud, risks to fair competition, or the need to upgrade our infrastructure to support the growth of digital payments while preserving access to cash for those who need it.
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The information in this briefing has been taken from the PSR’s Annual Plan and Budget 2022/23 published in March 2022. The material is used in line with the permissions provided - “the text of this document may be reproduced free of charge in any format or medium provided that it is reproduced accurately and not in a misleading context.” The material used is Payment Systems Regulator copyright.