Published on 30 July 2021

What started out as a Temple of Solomon to revolutionise the UK’s payment systems will now be reduced to a more manageable bungalow-sized development. Multiple layers collapse down to one.

The UK’s Payment Systems Regulator (PSR), who started this show rolling in 2015 by creating the Payment Strategy Forum, has just announced that another of its creations – Pay.UK – “should phase the development of the UK’s New Payments Architecture (NPA) by narrowing the scope of the NPA central infrastructure services (CIS) contract”.

Cheque&Credit now seem to have disappeared from the scope, just like CHAPS, LINK, Visa and Mastercard, so that the first roll-out of the NPA central infrastructure will be a 2-bed bungalow to house BACS and Faster Payments, and not the extensive country estate originally envisaged under the PSR’s own design project: the NPA Blueprint was delivered on tablets of stone to Pay.UK at the end of 2017 as an “implementable” plan, supposedly.

Pay.UK – the outcome of a revolutionary PSR-inspired move to re-unify the same payment systems that had been atomized into their own scheme companies in the mid-2000s – has worked diligently since its creation in 2017 to set up itself and its programme management units, advisory boards, governance structure and NPA re-design and tendering processes.

The PSR has also now dictated that “Pay.UK must secure this (CIS) contract through a competitive tender” and not through a “direct award”, code for not just rolling over existing contracts with Mastercard. Mastercard runs the infrastructure for BACS, Faster Payments and LINK, through its subsidiary Vocalink.

Another of the PSR’s masterstrokes was to dictate that the major UK banks should divest themselves of Vocalink, because of the market dominance of those banks over UK payments. Under the PSR’s intended “layered market model” there should be several separate marketplaces for layers like infrastructure provision, payment scheme management, settlement, and provision of payment services to end-users. No one market actor should have a dominant market share of any one layer, and ideally each layer should contain its own set of market actors, competing with one another for the business of the actors in the layers above and below.

There should be no monoliths, either actual or substantive (meaning 5 or 6 major banks acting as a de facto monolith). This has backfired as well: UK payments now has an actual duolith in the shapes of Mastercard and Visa, who were already strongly positioned in more than one layer before the PSR was created and who have benefitted enormously from the move to online shopping during the pandemic, from the switch from cash to card, and from digitalisation in general.

Both Mastercard and Visa are themselves payment systems regulated by the PSR but were exempted from being compelled to layer their own business models by splitting off their scheme management from the provision of infrastructure. LINK was compelled to do this, but Mastercard and Visa were not.

Where do we go from here? Heaven knows. The PSR has made an enormous hash of the UK’s payment landscape. It started off by directly steering developments through the Payment Strategy Forum and its various Directions and Specific Directions, and now it attempts inexpertly to steer them through the organisations its initial steering created. What a mess! And there is no chance of going back to the status quo ante.

It would be funny if this fiasco did not represent a colossal systemic financial risk falling directly on UK consumers and businesses. There is one comfort for if it does go wrong and there aren’t any credit transfers or direct debits to pay for the things money should be able to buy, though, because for everything else there’s Mastercard and Visa.