Payment systems

Launched: February 2003

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Purpose of the study

1. To assess:

• whether the clearing schemes permit open access to financial institutions
  
  
• whether there are any features of the schemes which prevent financial institutions from developing innovative services which would enable them to compete effectively for retail customers, and
  
  
• whether the schemes' charges are efficient and transparent.

2. To examine the cost to consumers of float. Float occurs when money reaches the beneficiary customer's account some time after it leaves the paying customer's account.

(Study followed in-house work.)

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Findings

1. Although direct access to the schemes remains costly for smaller institutions, the terms for indirect access enable them to compete effectively with direct members.

2. Clearing scheme charges account for less than four per cent of the total cost of providing payment services in the UK. The bulk of the costs incurred in providing payment services to customers lie with the individual institutions and not the shared schemes. The impact of the level and structure of scheme charges on retail competition is therefore likely to be small.

3. Features of the clearing schemes did not appear to hinder innovation. Institutions are able to develop differentiated products and compete for customers at the retail level.

4. The estimated annual cost to consumers of float is £30 million.

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Recommendations

None. However, a call to industry was made to agree a firm implementation date for industry proposals to shorten clearing cycles and separate the ownership of clearing schemes from their technical infrastructure in Bankers' Automated Clearing Services (BACs).

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Action following market study

A factual update on developments over the last three years in the UK's money transmission clearing systems (direct debits, standing orders, direct credits, cheques, paper credits and instantaneous credits), and an account of recent OFT competition work on card networks.

In March 2004 The Payment Systems Task Force was established. The Payment Systems Task Force wound up in 2006 and was replaced by the Payments Council.

The Payments Council was introduced to provide strategic direction to the payments industry and first met March 2007. OFT published Review of the operations of the Payments Council in March 2009.

The Review concentrated on:

1. how well the Payments Council has performed against its objectives (which were agreed by the Task Force) and

2. how well the payments industry has done in meeting the specific objectives set for it by the Task Force.

OFT recommended that:

1. cross-scheme integrity is given a higher priority by the Payments Council, and

2. the Payments Council provides a self-assessment every two years against progress on its objectives, recommendations from the Task Force, recommendations from this Review, and the higher priority on cross-scheme integrity mentioned above.

The OFT also made a number of smaller, specific recommendations. The OFT concluded that if this was carried out a further full scale OFT review of the industry would not be needed.

However, OFT will continue to keep an eye on the industry, and will pay particular attention to the self-assessment carried out by the Payments Council in two years time as mentioned above. See press release.

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Market study details and report

Download the OFT Report  UK payment systems  22 May 2003 (pdf 641 kb)

See press release 'OFT publishes market study on payment systems' 22 May 2003

See Payments Council  'Launch of industry guidance for the Payment Services Regulations' 13 October 2009

Download Questions and answers on OFT's role in enforcing Part 8 of the Payment Services Regulations  19 October 2009 (pdf file 77 kb)

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Background information

The OFT's press release announced its intention to examine recent payment system 'New OFT Market Study into payment systems' 27 November 2002.

The publication of the Cruickshank report March 2000.

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