Bank of England announces that, for the first time, a non-bank payment services provider has accessed the UK payments system directly.
The Bank of England has announced that a regulated payment services provider (PSP) has become the first non-bank direct participant in the UK’s Faster Payments system. This was facilitated by the Bank of England extending settlement account access in its Real-Time Gross Settlement (RTGS) system to non-bank PSPs, which was announced in July 2017 (see Latham’s related blog post). This change enabled non-bank PSPs to access the UK payment schemes that settle in central bank money directly for the first time, rather than needing to “plug in” to these systems indirectly via settlement agent banks.
Numerous models exist for direct and indirect participation in the UK’s various payment systems, and on-boarding timescales are improving rapidly (it is expected that it will take a well-prepared PSP around 12 months to gain access). 2017 was a record year for the number of new direct participants joining the main UK interbank payment systems (seven banks). But this announcement marks a milestone for non-bank payment services providers, helping to reduce the inherent complexity and cost of the provision of payment services by non-banks.
The Payment Systems Regulator reports that there is a strong line-up of PSPs expected to become direct participants in UK payment systems during 2018. Last month, the Payment Systems Regulator published its third report on access to payment systems and the governance of payment system operators in the UK.
The Bank of England explains that wider access to its RTGS is expected to bring financial stability benefits through increasing the proportion of settlement in central bank money, diversifying the number of settlement firms, and driving greater innovation in risk-reducing payments technologies. The Bank believes that this wider access also has the potential to increase efficiency and promote competition in the payments sector.
The announcement marks an important step forward in opening up access for new and innovative players. There is still some way to go before truly open access is realised, but this development signifies that this historic barrier to entry is beginning to be lowered.