The regulator for the payments sector has proposed that banks sell off some of their ownership of the VocaLink payments infrastructure because that common ownership is holding back competition and innovation.
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VocaLink, which is owned by a small group of banks, supports the UK payments systems: Bacs, faster payments and Link. According to the Payment Systems Regulator (PSR), VocaLink accounted for more than 11 billion transactions with a value of £6tn last year.
VocaLink processes over 90% of salaries, 70% of household bills and almost all state benefits in the UK.
PSR was formed last year, and is looking to increase competition in the £75tn UK payments sector. The regulator oversees the sector and encourages new players to innovate to create value for consumers.
“The payments industry has evolved at a steady pace, but now is the time to ask whether or not it is operating best practice. The evidence we have gathered shows that common ownership is hampering competition and the speed of innovation in the market,” said Hannah Nixon, managing director at PSR, following its latest report.
She added that the industry needs to encourage new entrants to compete on service, price and innovation. “Our proposals will increase competition and create more opportunities for challengers, fintechs and other organisations looking to enter the market.”
Read more about UK payments system
- Banks look set to lose their grip on payment systems because they add little other than resilience, as the new system regulator sets out its plans in its industry consultation.
- The Financial Conduct Authority is planning to open up the payments sector to new companies to improve competition.
- Increased competition in the financial transactions market has moved a step closer with the appointment of a managing director of the newly created regulator.
When PSR set out its plans in late 2014, it accused banks of adding little more than resilience to the payments system.
Speaking to Computer Weekly at the time, Celent analyst Gareth Lodge said the banks are resigned to losing control of the payments systems.
“I think the banks are pretty much resigned to giving up their ownership,” he said. “The question is who wants to buy it?”
There is demand for new payment services, according to the findings of an EY study of more than 10,000 digitally active consumers globally, including in the UK. The study found that about 3,000 had used fintech.
The EY report stated: “Adoption is relatively high for such a new category – with 15.5% of digitally active consumers using fintech products. The projected growth is dramatic: the adoption levels could potentially double in 12 months.”
Money payments and transfers are the most common fintech operations, with 17.6% of respondents that used at least one fintech service accessing these.