A hard-hitting report by the Payment Systems Regulator (PSR) has suggested that banks should sell part of their stake in the UK’s payments infrastructure to help increase innovation and competition.

The report features the provisional findings of the PSR’s market review into the ownership and competitiveness of the infrastructure that supports the UK’s payments systems: Bacs, the Faster Payments scheme and LINK. These payment systems are currently owned by a relatively small number of banks, which also control the single infrastructure provider that they rely on to process payments – VocaLink.

VocaLink processes over 90 per cent of salaries in the UK, more than 70 per cent of household bills and almost all state benefits. The PSR noted that nearly every business and person in the UK uses its technology, and last year the company processed over 11 billion transactions with a value of £6 trillion.

The regulator argued that the common ownership of this infrastructure provider by such a small number of banks was having a negative impact on innovation and competition in the industry. As a result, the PSR proposed that these banks sell part of their share of VocaLink in order to open the market and allow for more effective competition and innovation.

Hannah Nixon, the PSR’s managing director, explained: “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. There needs to be a fundamental change in the industry to encourage new entrants to compete on service, price and innovation in an open and transparent way.

“Our proposals will increase competition and create more opportunities for challengers, FinTechs and other organisations looking to enter the market. This will create the conditions for greater innovation – which is in the interests of those that use the infrastructure services directly, and the UK economy as a whole.”

The PSR is now seeking industry feedback on today’s interim report.

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