The in-depth report works as a call to action to regulators to rethink access to payments infrastructure for non-banks and bring genuine change to the system. Currently operators, such as BACS, Faster Payments and CHAPS are reserved only for banks – meaning that the myriad of alternative payment service providers (PSPs) and e-money issuers (EMIs) are forced to run on the rails of traditional banks – and face all the legacy, cost and unnecessary red tape issues that come with it. The report outlines the key restrictions associated with the current model that act as barriers to alternative payments providers, including:
- Legacy problems – Banks developed their core operating systems over two decades ago in a pre-Internet era, they were not anticipating the technological revolution that would develop in the years that followed Forced to run on the rails of the banks, alternative providers suffer the consequences when traditional banks’ systems fail
- Lack of control – Many banks chose to rule out the provision of financial services to entire industries, rather than taking a prudent (yet admittedly laborious) risk-based approach, as advised by the regulators. As a result their partner PSPs are prevented from servicing those same industries, even if the partner is regulated in its own right.
- Indirect Agency: This is today how most non-banks and current FinTechs like APS e-banking access Faster Payments. This option enables a PSP (the Indirect Agency) to generate a Faster Payment request via its Direct Member Agency Sponsor (typically a high street bank). The Direct Member then applies the funds, subject to its own rules for compliance. In this instance the Indirect Agency is reliant on the Direct Member for both access to the technology platform and access to the BoE settlement platform.
- Direct Member: This enables members to connect directly into the Faster Payments Central Infrastructure to send and receive Faster Payments. Directly connected members also perform their own settlement with the BoE.
- Direct Agency: This model, as the name implies, is a hybrid of the two models above, therefore potentially providing a feasible short-term solution and a more cost-effective model for the smallest PSPs. Unlike the Indirect Agency model, this option provides a PSP (in this case, the Direct Agency) with Direct Access to the Faster Payments Central Infrastructure technology, but like the Indirect Agency Model, BoE settlement is handled on the PSP’s behalf.
Rich comments that: “I wholeheartedly support the BoE’s decision to review the current model, which denies non-banks from accessing settlement accounts, and thus infrastructure such as Faster Payments. We have been fighting for such a move for a long-time and the fact that the BoE is at last considering this issue, is a step in the right direction. Such a measure would not be possible without the support and rallying of the Payment Systems Regulator (PSR), which has created a real force for change over the past year. We hope to build a long-term solution that provides fair and equal access to non-banks, while paying due credit to banks, who were the founding fathers of these systems.
“However, we urge both regulators and infrastructures – in particular Faster Payments – not to be stalled by the plans of the BoE. Actual change from the BoE will take significantly longer to implement. In the meantime, key non-bank payment providers will lose out on valuable business and growth opportunities, all the while being chained to high street banks.
“A short-term hybrid solution would deliver the perfect test-bed for the BoE – providing proof that alternative payment providers can be trusted with access to these systems, while the BoE works on its long-term plan to grant truly direct access to non-banks.”