Competition and choice in the banking sector

Written evidence submitted by the Payments Council

1. INTRODUCTION

1.1 The Payments Council is pleased to have the opportunity to submit written evidence to the Treasury Committee’s inquiry into Competition and Choice in the Banking Sector. We recognise the importance of payments in access to retail banking and so have focussed our response on this aspect of the banking sector.

1.2 The Payments Council is the organisation that sets strategy for UK payments. It was established in March 2007 to ensure that UK payment systems and services meet the needs of users, payment services providers and the wider economy. Whilst the Council is funded by its membership, which consists of banks and other bodies that provide payment services, the Board does have an Independent Chair and four Independent Directors who represent consumer and business interests. These Independent Directors, whilst in a numerical minority, can collectively veto any decision of the Board. The Council also operates several User Forums to enable better understanding of user requirements of the payment system over a wide range of subjects.

1.3 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.

1.4 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.

The clearing schemes are run by their respective Boards which are responsible for setting the work of the schemes and their entry criteria. 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. ACCESS TO PAYMENT SYSTEMS

2.1 We believe that the entry criteria set by the clearing schemes are reasonable and proportionate. It is a vital balance to get right, given their economic importance, between enabling sufficient access to schemes to create competition amongst players and ensuring that the criteria are robust and can withstand changing economic environments. As systemically important infrastructure, it is critical that payment systems are not made unstable by the failure (financial or technical) of a scheme member. Therefore, any criteria that restrict or inhibit access to the clearing schemes are only in place to the extent that is necessary to protect the systems against specific risks, or to protect the financial and operational stability of the system. As a case in point, it is important to note that the payment systems worked very well during the extreme market convulsions in late 2008.

2.2 The Payments Council has seen no evidence to suggest that the entry criteria for the clearing schemes impede competition and it is in fact the policy of both the Council and the schemes themselves to encourage new Members. The schemes aim to be as transparent as possible and ensure that information regarding membership is available in the public domain on their websites and that firms are encouraged to make enquiries about potential membership.

2.3 The schemes do not cover agency bank relationships with clearing Members but we have no reason to consider that these are causing problems. The ratio of agency arrangements to scheme Membership suggests that the agency market is competitive and thriving. If there were issues, we would expect to be made aware of any problems via applications to become direct Members, complaints about the rules of scheme Membership and wider market comment.

2.4 Over the last five years there have been twelve applications for membership across the schemes, all of which have been successful. Two of these new Members are expected on stream during the later part of 2010. Additionally, Faster Payments has received two applications for Direct Agency status, which are currently under consideration. When the technical specifications for the Faster Payments Service were drawn up, a variety of ways of accessing the service were designed so that payment institutions and others which did not want to become full members could still use the service by different routes such as direct agency access.

3. RAISING CONSUMER AWARENESS ABOUT CHOICE

3.1 The Payments Council pushes an agenda of transparency so that customers have the necessary information to make an informed choice about their providers. With the roll-out of the Faster Payments Service, we have published information on our website concerning Member status on the scheme – including which banks are operating in the scheme and what their individual limits are for single immediate payments and for standing orders. We believe it is important that consumers have the ability to chose their provider if speed of payments is important to them.

3.2 As part of our transparency agenda, we also operate a sort code checker on the UK Payments website that allows consumers to check whether their account (or an account they are sending money to) can receive various payment types or be eligible for having a Direct Debit instruction set up on it.

3.3 Whilst this work is important for informing consumers, we also see it as having a vital function in pushing our members to offer the best choice and service to their customers.

September 2010