Business | Markets

James Ashton: Can new regulator make banking pay for challengers?

 
The FCA’s new Payments Systems Regulator will take over monitoring of the £75 trillion payments system
James Ashton
5 August 2014

With little fanfare, Adrian Kamellard, the chief executive of the Payments Council, quit last week.

His exit was not entirely surprising given that the council is about to have most of its powers taken away from it in yet another change to the banking industry’s regulatory landscape.

From April next year, the Financial Conduct Authority’s new Payments Systems Regulator will take over monitoring of the £75 trillion payments system where seven billion transactions are made between consumers and businesses every year.

Under Kamellard, the Payments Council had two main successes: the current account switching service, which is on track to help one million customers switch bank accounts in its first year, and mobile payments system Paym.

But the decision to scrap cheques, made before his time and later abandoned after public and political outcry, was the beginning of the end for its model of self-regulation.

Whether the Payments Council opts to merge with the British Bankers’ Association, which has been rumoured, is not the point. What the PSR decides to do about Britain’s payments infrastructure is far more interesting.

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Under its remit comes the Bacs electronics payment system and Vocalink, which includes the 67,000-strong Link ATM network. Both are controlled by the main high street banks.

Of course, all regulatory slicing and dicing is driven by the desire to reduce risk in our financial services industry and increase competition. In the case of payments, it is aiding competition that the PSR is most likely to have its eye on.

The challenger banks that the Government is desperate to become established in Britain would dearly love to drive down the fees they must pay to transmit money. Some have grumbled in the past about being disadvantaged by having to use someone else’s system.

Making it easier and cheaper to use is rather like telecoms regulator Ofcom’s drive a decade ago to grant fair access to BT’s local exchange network to rival broadband providers such as BSkyB and TalkTalk.

What is different is the PSR can force the big banks to sell off their payment system altogether, something that was deemed a long shot in the case of BT. Selling infrastructure to a third party doesn’t necessarily lead to lower fees.

I wonder if the privatisation of the National Grid all those years ago translated into cheaper transmission for gas and later electricity companies who must use it? Hannah Nixon, the PSR’s managing director who was recruited from Ofgem, must know the answer. Incidentally, Vocalink already calls itself “a national grid for payments”.

The big banks cannot be averse to a sell-off. They already use other transmission systems, especially when they are transacting internationally. I wonder what difference it would make.

Still, this form of intervention is much less unwise than further state-sponsored disposals of bank branches. And with the Competition and Markets Authority probing small-business lending and current accounts, every little helps.