The UK's New Payment Architecture – PSR Call for Input

On 28 January 2020, the Payment Systems Regulator (PSR) issued a "Call for Input" on the future regulation of the UK's New Payment Architecture (NPA). The PSR is asking for views about possible competition issues in order to consider the nature of regulation that might be applied to the NPA (the payment industry's new way of organising and clearing the settlement of most of the UK's domestic interbank payments, including payments that currently use the Bacs and Faster Payments systems).

Responses to the Call for Input must be submitted by 24 March 2020. The next stages will be a policy consultation and then a final statement, which is expected to be published by the end of the year.

The development of the NPA and Pay.UK

The aim of the NPA is, according to the PSR, to make "transactions safer and give everyone more control over who, when and how they pay". Thanks to the NPA, new payment related services or 'overlay services' will develop.

Pay.UK is the operator that took over Bacs and Faster Payment services and which will deliver the NPA. Pay.UK is currently procuring a replacement for these payment systems. In the procurement process, Pay.UK will have to make a range of decisions for the NPA central infrastructure services (CIS).

The reasons for the Call for Input

The precise design of the NPA (and the boundary between the 'monopoly' provider of access to the NPA CIS and 'competitive provisions' of other services) will be determined in part by the procurement process. Although the exact structure will be determined once the procurement process is complete, access to the NPA's CIS will be given by a monopolistic provider.

The PSR is keen to ensure that competition and innovation are protected as part of the process and in the final outcome.

Potential competition issues

The NPA is expected to be designed in a way which will allow new activities and services to be offered.

The PSR identifies six situations where competition may be affected by the behaviour of the CIS provider:

exploiting first mover advantages to raise barriers to entry for others
overcharging for access
distorting prospective third-party competitors' access to the central infrastructure
gaining unfair commercial advantage through knowledge of competitors' commercial strategies
abusing access to and use of the NPA payments data to its advantage
discriminating against services provided in the NPA in favour of (possible) competing services outside the NPA in which it has a commercial advantage.

Addressing the competition concerns

The PSR in its Call for Input suggests some ways to mitigate the competition issues highlighted.

First the technical design of the NPA should facilitate competition and innovation, for example by having a technical structure with open standards and application programming interfaces that allow interoperability.

Secondly devising specific governance rules, for example who makes decisions and opportunities for others to influence those decisions.

Finally, the NPA CIS economic interest in overlay markets or competing payment systems could be removed though separation, for example by setting up a joint venture with an entity with no commercial interest in competing services, separate legal entities or accounting separation.