Further written evidence submitted by
the Payments Council
1. INTRODUCTION
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. OWNERSHIP
OF PAYMENT
SYSTEMS
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. REGULATION
OF PAYMENTS
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. ACCOUNT SWITCHING
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. ACCOUNT NUMBER
PORTABILITY
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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