The UK's Payment Systems Regulator (PSR) has set a new deadline of 1 May 2020 for interested parties to respond to its briefing paper on competition issues that might arise during the procurement of infrastructure for the UK’s New Payments Architecture (NPA). This is an extension to the original 24 March 2020 deadline following the Covid-19 disruption.
The NPA is a conceptual model for future payments in the UK, representing the payments industry's proposed new way of organising the clearing and settlement of domestic interbank payments. Such payments are critical to everyday life and include transactions that range from the transfer of money between friends to employers paying employee wages.
The NPA will streamline the existing Bacs Payment Scheme (BACS), Faster Payments (FPS) and Cheque Payment infrastructures into one common central infrastructure, which will be governed by a coherent set of rules, standards and processes. This aims to simplify standards and requirements for Payment Services Providers (PSPs), which ought to encourage greater competition, facilitate innovation and enhance resilience and security in payments, with envisaged benefits to payment service users.
Pay.UK is the authority responsible for running the UK's existing retail payments infrastructure and is tasked with delivering the NPA. March 2019 saw the launch of a five-stage competitive procurement process, with Pay.UK seeking to appoint the NPA's Central Infrastructure Services (CIS) provider. The successful CIS provider will be responsible for the design and build of the clearing and settlement layer of the NPA, which includes the provision of hardware, software, secure communications and security standards and operating environments. The partner will need to deliver a “seamless migration of current service users”. The CIS is a common central infrastructure that provides interbank clearing and settlement-related services that enables one PSP to make a payment to another PSP. The procurement process is currently finalising Phase 2: Request for Information from bidders, following the conclusion of Phase 1: Pre-qualification Questionnaire.
Regulating the NPA
As the payment systems regulator, the PSR is responsible for regulating Pay.UK, its delivery of the NPA and new payment systems once the NPA is live. To aid Pay.UK and bidders alike, the PSR is aiming to provide clarity over the likely form of future regulations throughout the procurement process. This will culminate in a "Policy Statement" setting out the PSR's expectations, concerns and regulatory approach, which is expected to be published before the end of 2020 (co-ordinating with Pay.UK’s NPA CIS procurement timetable as appropriate).
The PSR has stated that it wants the NPA to be delivered "in a way which supports the development of innovation and competition between different types of payments and payment systems, and drives better outcomes for users". To achieve this objective, early consideration of potential competition issues is critical, since the precise design of the NPA and role of the NPA's CIS provider will in part be determined by decisions made during the procurement process.
The Call for Input: Competition and Innovation in the UK’s New Payments Architecture
To inform its Policy Statement, the PSR has issued a Call for Input on a briefing paper that it has published, in order to gather stakeholders’ views on possible competition issues that arise with the implementation of the NPA CIS.
The paper sets out three hypotheses about possible harms to competition, along with mitigation strategies for those harms and lists questions for stakeholders to consider.
Briefly, the PSR foresees three potential competition harms:
- Vertical competition harms: Arising if the NPA CIS provider also wants to provide overlay services which require access to the NPA CIS. Such overlay services may benefit from, amongst other things, greater access to information, reduced access costs and faster response times, in comparison to any competitor.
- Horizontal competition harms: Arising if the NPA CIS provider has an economic interest in a different payment system that competes or has the potential to compete with the NPA. The provider could use commercially sensitive NPA information for its own benefit or deliberately downgrade the quality of service of NPA infrastructure, giving alternative systems an advantage.
- Monopoly harms: Arising from there being a sole provider of the NPA CIS. Such a provider will not be subject to competitive constraints for the duration of its contract and may lack incentives to control costs, prices and investment in further innovation.
The paper also sets out various mitigation strategies, which range from the implementation of strong governance arrangements enforced through contractual provisions, to removing or reducing the interests of the NPA CIS provider in overlay markets or competing payment systems. Strategies focus on the vertical and horizontal competition harms and not the monopoly harms, due to Pay.UK's ongoing competitive procurement process.
Participants in the NPA CIS procurement process, current and prospective PSPs and users of payment systems (including representative bodies) will all have a keen interest in the development of the NPA, which may involve concerns over competition with regards to the provision of its central infrastructure.
Parties have until 5pm on 1 May 2020 to submit any comments. Comments can be emailed to the PSR at [email protected], or provided in writing to The PSR Pay.UK/NPA Project Team, Payment Systems Regulator, 12 Endeavour Square, London E20 1JN.
Respondents should note that they must explicitly identify any items in a response that they want to claim commercial confidentiality over. A standard confidentiality statement in an email message will not suffice and all non-confidential responses will be available for public inspection.
Parties will also have further opportunities to consult with the PSR on this work, including at the time of consultation on its draft Policy Statement.