Competition and choice in retail banking - Treasury Contents

Further written evidence submitted by the Payments Council


1.1  The Payments Council is pleased to have the opportunity to submit further written evidence to the Treasury Committee's inquiry into Competition and Choice in the Banking Sector. This follows our previous submission made in September.

1.2  Given the focus during evidence sessions on the ownership of payment systems and account switching, this second memorandum from the Payments Council specifically addresses these issues.

1.3  This response covers the contracted schemes, with the exception of the UK Domestic Cheque Guarantee Card Scheme as it has been agreed this scheme will close on 30 June 2011.


2.1  The Payments Council can trace its origins back to Sir Donald Cruickshank's report on Competition in UK Banking in March 2000. After a series of reviews, culminating in the OFT-led Payment Systems Task Force, it was agreed by the members of that Task Force and the previous Government that a new body be created to govern the UK payments systems. This led to the establishment of the Payments Council in 2007, with a Board which comprises industry directors and four independents who collectively wield a veto, plus an independent non-voting chair.

2.2  The Payments Council has three core objectives:

—  to have a strategic vision for payments and lead the future development of cooperative payment services in the UK;

—  to ensure that the payment system is open, accountable and transparent; and

—  to ensure the operational efficiency, effectiveness and integrity of payment services in the UK.

This means that the Council is responsible for driving change in UK payments and for fostering a climate in which innovation takes place, to the benefit of payment service providers and the users of the system.

2.3  After two years' operation of the Council (during which time it published the first National Payments Plan), the OFT reviewed the Payments Council in 2009 and reported that the establishment of the organisation was a definite improvement on what prevailed before its creation. The OFT also concluded that the consultation on the National Payments Plan contributed to its objective on openness and accountability. The review did highlight some areas where further work could be done and it was agreed that the Payments council would publish a self-assessment against criteria set out by the OFT every two years, along with progress on work in the identified areas. The next review will be completed by the end of 2011.

2.4  The Payments Council works closely with its contracted schemes, for the benefit of the UK payments industry. These include:

—  Bacs Payment Schemes Limited;

—  CHAPS Clearing Company (covering two schemes: the CHAPS Sterling and Faster Payments);

—  LINK ATM Scheme;

—  Cheque & Credit Clearing Company Limited;

—  Belfast Bankers' Clearing Company Limited; and

—  UK Domestic Cheque Guarantee Card Scheme.

2.5  The clearing schemes are run by their respective Boards which are responsible for setting the work programmes of the schemes and their entry criteria.


3.1  The Banking Act 2009 gave the Bank of England statutory powers to oversee payment systems that are recognised (by HM Treasury) as systemically important.

3.2  In addition, the Payment Services Directive was implemented in the UK through the Payment Services Regulations (PSRs) in November 2009. A large proportion of the PSRs is to govern the relationship between a customer and their payment service provider—in terms of the information that the customer receives regarding transactions on their account and how payments are executed—but there are also two other important elements to the Regulations. Firstly, the OFT has a role to ensure that access to payment systems that are not designated under the Settlement Finality Regulations remain transparent and objective; and secondly, this legislation enables non-banks to enter the payments market and brings them into regulation for the first time. The consequence of this should mean that the market for offering payment services remains competitive.

3.3  Most recently, the OFT undertook a Review of barriers to entry, expansion and exit in retail banking, which included a look at the UK's payment systems. The Payments Council, together with the schemes, contributed to this review and we were pleased to see that the OFT concluded that new entrants are able to access industry-wide payment schemes such as CHAPS and Bacs; and that those choosing to access payment systems as an agency bank are able to shop around and secure good arrangements at competitive rates.

3.4  In summary, we feel that there is no evidence to suggest that the current ownership arrangements of the UK's payment systems is in any way damaging the service that the banking industry's customers receive, nor is it creating a barrier to increased competition in financial services. There have been many changes over the last decade, most of which have increased the levels of transparency and accountability within the system.


4.1  We have noted the interest given to the issue of account switching during the oral evidence sessions. The ability to allow consumers to switch current accounts with ease has been an on-going debate for several years, and in response the industry has put in measures to make the process as simple as possible.

4.2  The industry has facilitated switching by issuing switching guides which consumers can choose to use as guidance and undertake the changes to their payments themselves; and by introducing a switching service which allows users to accept an offer from their new financial institution of having the changes undertaken on their behalf, in a way which minimises their involvement.

4.3  A switching service called "Transfer of Direct Debits and Standing Orders" (or ToDDaSO) has been in operation in the UK since 2001 and been available as an automated service since November 2004. As the banks arrange for regular payment instructions to be transferred to a new current account on the customer's behalf, switching services significantly reduce the administrative burden for both customers and third parties. The customer is given clear timescales as to how long each part of the switching process will take and the guarantee that both financial institutions involved will cancel any bank charges the customer may have to pay as a result of any mistake or unnecessary delay caused by those financial institutions when the current account is transferred.

4.4  There is an additional provision within the ToDDaSO service that the new financial institution, at the request of the customer, notifies Direct Debit originators of the new accounts details on a timely basis and that originators process these changes immediately or at the latest within three working days of receiving the transfer advice.

4.5  However, we recognise that, despite the success of the switching arrangements that we currently have in place and that they are generally considered to be some of the best in the EU, there is scope for reviewing the ToDDaSO service to see how it can be improved for customers and we will be working with Bacs, which runs the service, to consider this. Additionally, we will be proactively engaging with our members to see what further collaborative arrangements, beyond those under ToDDaSO could better facilitate the process of switching for customers.


5.1  One method of facilitating switching that has come up in several oral evidence sessions is that of account number portability. This has been explored by the industry and the competition authorities in the UK several times in the past and in all cases it was concluded that the costs and risks of implementing and operating portable account numbers significantly outweighed the benefits. It was also recognised that the UK's switching service delivers many of the benefits of portable account numbers in minimising the administrative burden for consumers and third parties, as it handles the transfer of regular transactions to the new current account on behalf of the consumer.

5.2  Whilst we have no reason to believe that the evidence that led the industry, as well as external commentators, to conclude that this was not the best way of facilitating switching has changed in any material respect, we will nevertheless commit to reviewing this again when we undertake the work mentioned in para 4.5—which, in itself, should have an impact on the rationale for such a change.

March 2011

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Prepared 2 April 2011