UK regulator wants banks to sell their stake in payments infrastructure

The core infrastructure for retail payments in the UK is operated by VocaLink, a private for-profit company owned by a handful of the countrys largest banks, risk.net reports. The evidence published today indicates that the common ownership of this infrastructure provider by this small number of banks is having a negative impact on innovation and competition in the industry, the PSR said, the source cites.

In a consultation, the regulator proposed forcing banks to sell their stakes in VocaLink, opening up the provision of infrastructure to competitive tender, establishing a common messaging language and revamping the governance of the Link ATM network.

The ownership of VocaLink has long been a point of contention. Smaller payments firms, which have proliferated in recent years, complain the banks shut them out of infrastructure or make it difficult and costly for them to join, regarded as one of the major catalysts for the creation of the PSR, with its mandate to foster competition and innovation, in April 2014.

In the abovementioned consultation, it acknowledged VocaLink has outperformed its service agreements for downtime and said the majority of stakeholders are happy with the current quality of service. There are also signs that VocaLinks operation of the Link, Faster Payments and Bacs systems bring economies of scale.

However, the PSR argues VocaLink is not a natural monopoly, as other payments infrastructure providers exist and have already built the necessary systems, enabling them to move into the UK market at a relatively low cost.

The PSR does not advocate having numerous infrastructure providers operating side by side, but it said competition for the market would probably sharpen the quality of service. Furthermore, without ending the banks ownership of VocaLink, the regulator fears no tender could be truly competitive.

The PSRs other measures target the systems operation more directly. First, the regulator is proposing the use of common messaging standards – currently, each of VocaLinks three systems adopts a different standard, none of which are internationally recognised. Moving to ISO 20022 could remove a barrier to entry, the PSR believes, as well as creating the possibility of more innovation.

The regulator is also proposing legal separation between VocaLink and the Link network, as the body setting the rules for the payment system and awarding the contract are one and the same. This is already being taken forward by the industry. VocaLink said it is committed to supporting a competitive and innovative payment system. We look forward to working with the PSR to ensure the proposals are pragmatic and effective for all participants, it said, the source cites.