The Bank of England has informed non-bank payment service providers (PSPS) that they are now eligible to apply for a settlement account in the Bank’s RTGS system.
Holding their own settlement account at the Bank enables these non-bank PSPs to apply, for the first time, for direct access to the UK’s sterling payment systems that settle in Sterling central bank money, including Faster Payments, Bacs, CHAPS, LINK, Visa, and, once live, the new digital cheque imaging system.
The Governor of the Bank of England said: “I am delighted that the Bank of England, the FCA and HM Treasury are working together to stimulate competition and innovation in payment services by widening access to the UK’s payment systems to non-bank payment service providers. In parallel, this should support financial stability through greater diversity and risk-reducing payment technologies.”
These changes will enable non-bank PSPs to compete on a more level playing field with banks. In turn, reduced dependence on bank competitors for access to payment systems will allow non-bank PSPs to offer a wider range of payment services. These factors will all help to increase competition and innovation in the provision of payments services. In the longer term, the innovation which stems from this expanded access should promote financial stability by:
- creating more diverse payment arrangements with fewer single points of failure;
- identifying and developing new risk-reducing technologies; and
- expanding the range of transactions that can take place electronically and be settled in central bank money.
At the same time, as the Governor made clear last summer, these benefits cannot be allowed to come at the cost of reduced resilience of RTGS. That is why the Bank has been working over the past year with the Financial Conduct Authority (FCA), HM Treasury, HM Revenue & Customs, the Payment Systems Regulator (PSR) and the payment system operators to develop a comprehensive risk management framework to ensure the continued resilience of the Bank’s RTGS service.
Before non-bank PSPs can open a settlement account, they will need to demonstrate compliance with this risk management framework. A number of legislative changes also need to complete their passage through Parliament. As a consequence, the Bank’s expectation is that the first non-bank PSPs will join RTGS during 2018.
In the current system, non-bank PSPs have to use the banks to offer their products, limiting the opportunities for non-bank PSPs to provide competitive services. Direct access for these PSPs will lead to further competition and innovation improvements in the payment systems and the products that end-users can expect to receive.
In response to the announcement Hannah Nixon, Managing Director of the Payment Systems Regulator, says: “This is a welcome move by the Bank of England and something we have been encouraging since the introduction of the PSR. Allowing PSPs to have their own settlement accounts will lead to fairer and more open access, which will help increase competition in payments. Fundamentally, this will ensure that UK payment systems keep pace with the changing structure of the financial system.”