LINK access and governance report published by Payment Systems Task Force

Issued by the Payment Systems Task Force, chaired by the Office of Fair Trading

69/06 6 April 2006

The Payment Systems Task Force has recommended a number of changes to improve the governance arrangements of LINK, the UK's leading automated teller machine (ATM) switching network (see note 1).

Download LINK Access and Governance Working Group report (pdf 980 kb).

The Task Force set up a Working Group to consider access and governance issues related to LINK. Good governance and open access are important to help ensure that consumer interests are taken into account.

The Working Group found that LINK had introduced many innovative features in recent years, but agreed that it would still benefit from changes to its governance. The Working Group recommended that the LINK card scheme should:

reinforce its existing objectives to promote innovation, efficiency and the interests of consumers
continue with its plans to introduce a standing committee on consumer issues to represent the interests of consumers, and
report back to the Task Force on the success of the recently introduced changes to its voting arrangements, following a 12 months review of effectiveness.

The Working Group also concluded that members of the LINK card scheme and Post Office Ltd should continue to explore if a way acceptable to all parties can be found that would allow free cash withdrawals at Post Office counters for all consumers holding a current account with a major financial institution.

The Working Group also made recommendations about LINK Interchange Network Ltd:

ownership of this company should be opened up to new bodies, not restricted to banks and building societies, as is currently the case
a smaller, more effective Board should be introduced, which would include independent directors, and directors that had been voted on to the Board by the company's owners, and
the degree of separation between the card scheme and the company should be increased, and a Service Level Agreement introduced between the two.

The Task Force will be monitoring progress against the recommendations and LINK will report to the Task Force in twelve months.

Jonathan May, OFT Director of Markets and Policy Initiatives and Chairman of the Task Force, said:

'The standing committee that the LINK card scheme is establishing will allow the scheme and its members to work directly with consumer representatives to address issues of interest to users of the LINK network .'

The Payment Systems Task Force announced a faster payments service for electronic payments in May 2005 (see press release 94/05), changes to the access and governance arrangements of BACS (see press release 42/06) and it is currently examining cheque clearing (see press release 211/05).

NOTES

1. LINK is the leading automated teller machine (ATM) switching network in the United Kingdom. It enables cardholders to withdraw cash and obtain balance information from all but a handful of the 57,900 ATMs in the United Kingdom, as well as supporting some other transactions from ATMs such as PIN change or mobile phone top ups. In 2005, LINK processed around 2.5 billion transactions and United Kingdom ATMs dispensed over £91 billion in LINK cash withdrawals. On peak days, LINK processes over 10 million transactions and £500 million is dispensed across the network.

2. LINK has two constituent parts: the card scheme and the processing company, called LINK Interchange Network Limited. The LINK card scheme determines the interchange fees and the Operating Rules for transactions between scheme members. The processing company (which is explicitly 'for profit') provides the technical, commercial and financial infrastructure that supports the LINK card scheme.

3. The Payment Systems Task Force was established in 2004, to identify, consider and seek to resolve competition, efficiency and incentive issues relating to payment systems over four years, particularly looking at network effects of the existing payment mechanisms. The Task Force meets not less than four times a year, and reports on its work and findings annually. Working groups have been established to take forward work on various issues. The Task Force publishes a report at the conclusion of each working group.

4. The members of the Payment Systems Task Force are: Office of Fair Trading (Chair), APACS (Association for Payment Clearing Services), BACS Payment Schemes Limited, British Bankers' Association, British Retail Consortium, British Chambers of Commerce, Building Societies Association, CHAPS, Cheque and Credit Clearing Company Limited, LINK, Visa, MasterCard, S2, Federation of Small Businesses, National Consumer Council, Which?, The Bank of England (sitting as observers), and HM Treasury (sitting as observers). Individual banks are members of the Task Force's working groups.

5. Competition concerns about United Kingdom payment schemes were raised in the Cruickshank report of 2000. It found economic characteristics of United Kingdom payment schemes that did not appear to deliver price transparency, good governance, non-discriminatory access, efficient wholesale pricing or innovation. The report suggested that a new framework for competition, including licensing and regulation, was necessary to deal with the problems identified.

6. In preparation for proposed legislative changes that were to provide the Office of Fair Trading with powers as a specialist regulator of payment schemes, the OFT examined and reviewed the payment systems market in 2003 in relation to open access, innovation and efficient and transparent charges. The OFT report 'UK payment systems' (May 2003) noted that the industry had undertaken a number of self-regulatory reforms in addressing some of the concerns raised by the Cruickshank report - for example, the system changes to BACS and governance changes to APACS. The OFT reported, however, that a number of competition concerns remained. The proposed legislation was suspended by H M Treasury in favour of the Task Force and the payment systems industry therefore currently remains essentially self-regulatory. Download UK payment systems (pdf 641 kb).

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