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Payment Systems Regulator - Indirect Access Market Review

Response to the consultation

We welcome the PSR’s Market Review and wider initiatives to support improved indirect access to payment systems for IPSPs.  Credit unions, as small IPSPs, are acutely affected by the market failures which have prompted the need for this review, namely: a limited choice of IAPs, a poor quality service experience with limited ability to negotiate on price or demand better service and an inability to switch in order to drive competition.  

These issues place credit unions in a disadvantageous position vis-a-vis their PSP competitors and leave them vulnerable to changing external circumstances which are outside of their control.  Examples of this are the recent withdrawal of a major IAP to agency IPSPs within the credit union sector or the overnight ramping up of prices by another IAP to non-agency IPSPs in the sector. 

Notwithstanding these concerns we also accept and support the PSR’s provisional conclusion that there are a number of market developments underway – partly prompted by the activities of the PSR and partly prompted by the increased pressure by various different PSP sectors – which hold promise for improvements in access conditions for IPSPs over the medium term.  This includes work by the Payments Strategy Forum on access for IPSPs; various projects to review access requirements by the payment schemes; the advent of new IAPs seeking to widen access; urgent domestic and international reviews of the twin phenomena of financial crime regulation and de-risking; and new FinTech solutions to aggregate technical access to payment schemes.

We are encouraged by the potential of these developments to address the challenges of access for smaller agency and non-agency IPSPs such as credit unions.  This feeds into work we are leading within the sector to re-establish agency access for credit unions via an aggregator model for credit unions under the government-sponsored Credit Union Expansion Project as well as other similar initiatives and products being developed for the benefit of credit union members.

One area within this which we believe the review may want to consider further is that of pricing.  The huge variety of prices paid by IPSPs to access the different payment schemes coupled with the opacity of pricing demonstrated by the difficulty even the PSR has had in gaining a clear picture of the market demonstrates that that price mechanism is not operating as it should.  It is disappointing therefore that the review demotes price to a secondary issue to be dealt with by increased competition and switching. We urge the PSR to look again at this question and to consider whether remedies around price transparency might have a role in improving the market’s functioning.

Beyond this we are satisfied that in the near term positive market developments should be allowed to run their course naturally at this stage before any market intervention is considered.  The PSR should remain vigilant and vocal in its expectations and criteria for success, however, as the PSR’s activity to date is without doubt a key driver behind these positive developments and were this pressure to relent it may reduce the likelihood of the full benefits of market developments being felt. We hope that the PSR will keep the market under continual review and be ready to intervene if the early promise of the outlined market developments ultimately proves to be unfounded.

The full PDF version of the response is available to download on the right-hand side.