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Second annual progress report published by the Payment Systems Task Force

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

93/06    30 May 2006

Today the Payment Systems Task Force published its second annual progress report. This period has seen the Task Force recommend changes to the way two payment schemes are governed, which will result in increased transparency and access to schemes as well as greater input for consumers and businesses.

Download Second annual progress report of the Payment Systems Task force (pdf 198 kb).

It has also seen the Task Force begin to examine the cheque clearing system, and to examine a proposal from APACS for a new way of governing the payments industry.

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

'This report represents another successful year for the Task Force. In just two years the Task Force has announced a new faster payments service which will put the UK at the leading edge of payment developments. It has recommended new governance strategies for two payment schemes that will not only increase transparency but also place a firm emphasis on innovation and on both consumers and businesses. Thank you to all those involved in the Task Force and its Working Groups.'

The progress report provides an update on:

• 'Faster Payments', the  new internet, phone and standing order service which is due to come into effect in late 2007
• the Task Force's current work on cheque clearing
• ongoing work by the payments industry on a new governance model to replace the existing arrangements.

The Task Force has published two reports this year. In March 2006 the Task Force recommended that BACS Payment Schemes Limited (BPSL):

• establish an Affiliates Interest Group to allow users to raise issues directly with the BPSL Board
• introduce a formal consultation process for major potential changes
• adopt a revised objective to promote continued development of the scheme, ensuring it provides an efficient and effective service for the future.

All three recommendations are being adopted by BPSL.

In April 2006 the Task Force recommended that the LINK company:

• open up ownership to bodies that are not currently owners (i.e. not be limited to banks and building societies)
• introduce independent directors to its board
• make the new board structure more efficient and streamlined.

These three recommendations are being addressed through a governance reform project that began at the end of last year.

The Task Force welcomed the LINK card scheme's agreement to create a Standing Committee on Consumer Issues, the reinforcing of its objectives to promote innovation, efficiency and the interests of consumers and the commitment of LINK scheme members and Post Office Ltd to continue negotiations about the issue of access to cash from Post Office counters for all consumers holding a current account with a major financial institution.

NOTES

1. The BACS Access and Governance Working Group was set up by the Payment Systems Task Force in September 2004 to consider any issues involving access restrictions to the BACS scheme and the governance of the body responsible for the BACS scheme, BACS Payment Schemes Ltd (BPSL). See press release 42/06. Download  the report (pdf 416 kb).

2. 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. 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. See press release 69/06. Download the report (pdf 980 kb).

3. The BPSL Innovation Working Group Report recommended faster clearing times on electronic payments between banks following telephone or internet instructions from customers, as well as standing orders. Following the recommendation, APACS, the banking industry association for payments, has today established an 'implementation group' to consider how the new service would work in practice. See press release 94/05. Download the report (pdf 478 kb).

4. APACS is the UK trade association for payments and for those institutions that deliver payment services to customers. It provides the forum for its members to come together on non-competitive issues relating to the payments industry. They currently have 31 members whose payment traffic volumes account for approximately 97 per cent of the total UK payments market. More information can be found from APACS website.

5. 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.

6. 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.

7. 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.

8. 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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