PSR Oral Evidence session at Treasury Select Committee

Below is a write up of the full evidence session given by the PSR to Treasury Select Committee on 27 June.

APP Fraud

The PSR were asked about their latest consultation on APP fraud, and were particularly pushed on timelines. Response from the PSR:

• The final Report is due 8 months after the Financial Services and Markets Bill (FSMB) receives royal ascent (which should be any day now).
• Implementation date of proposals (ie. for APP mandatory reimbursement) is subject to a consultation (due in the next couple of weeks).

The TSC asked further questions on the removal of the £100 minimum, and the addition of the maximum loss threshold. Response from the PSR:

• All losses would now be covered, but there will be an excess of £35 on claim. Thinking changed because:
• Arrangements were too complicated, this is simplified.
• However, they are consulting on the £35 excess, for example, should it be a % rather than absolute value?
• Maximum loss- reasoning is without a maximum, it creates an uncapped liability for financial firms, which is difficult to manage risk. Possible limits: £415,000 (FOS limit), or £85,000 (FSCS limit).

Market reviews & card fees

PSR overview:

• Still working to published timeline.
• Has been difficult to collect information, broadly requested info in 2 phases, have got all from 1st phase but not all from 2nd phase. Some outstanding requests.

The TSC asked about Visa and Mastercard’s cooperation. PSR response:

• They have a 'constructive working relationship'.
• The extent of requests has surprised Visa & Mastercard, they are not used to this level of regulatory intervention or scrutiny.

• The PSR have found it frustrating that this info isnt readily available.
• PSR have set out a new regulatory requirement to collect this data regularly.
• Resourcing levels have been an issue at PSR. Too big for small regulator.

TSC asked if the PSR has found any evidence that there has been non-compliance with the IFR?

• PSR said that they completed a review around 3 years ago to check on compliance with IFR.
• 2 cases have led to fines (Natwest and Barclays) for non-compliance to IFR.
• Barclays was related to provision of information to merchants. Natwest was related to treatment of whether cards were commercial or consumer.

TSC questioned what would happen if interchange fees (IF’s) were removed entirely, as they are obviously an issue for retailers?

• PSR said that they want the market to be competitive; if you prevent cost recovery, you might see changes in fees elsewhere.
• However, they are aware that there is not sufficient competition in this market.
• If you focus on one fee you see fees rise elsewhere.
• They feel the solution is to find ways of inject more competition (through Account-to-account and Open Banking).

How do IF's compare to other countries?

• Fees within EU are low by international standards.
• PSR are asking if these fees are at the right level? Should they have increased?

Should there be different fees for different size businesses?

• To do that would require a detailed intervention and change of law.
• PSR concern is competition in card acquiring services which affects SME’s.
• Measures coming in this year.

Cash

TSC talked about the ‘Access to Cash’ review which stated that: 1. Cash should be available; 2. Traders should accept cash; and 3. Promote systems to make digital payments available to all.

Is there more that needs to be done to ensure that PSR/FCA can deliver on these 3 things? Noted that there is a resistance to second one. Biggest issue of non-acceptance of cash: transport, bills, and restaurants.

PSR response:

• Business depositing: this is where the FSMB will give the FCA significant new powers. Matter for gov and parliament if legislative requirement needed on acceptance, but FCA/PSR can make it easier for businesses to accept cash by increasing places to bank their cash, via shared banking hubs, post offices etc- to make it more convenient.
• Digital: One real opportunity is to realise the opportunity provided by open banking. This year PSR can turn on additional capabilities within OB that allow people to take control over digital payments. Give people permission to use VRP (allows flexibility for example in bill paying). Remove barriers to using digital payments.

The PSR conducted a review of Link, which found that they were satisfied they had in place what was needed to ensure communities are covered- could the PSR provide more information? PSR response:

• Review looked into whether they have been doing their job well on protecting free access to cash. Broadly, yes PSR are happy. Publishing findings in a few weeks. That is both protecting geographic spread and communities. Communities themselves can also request a free cash machine if systems in place aren’t working for that specific community.

The TSC pushed the PSR on whether businesses should be mandated to accept cash? Is there a growing problem pushing people out of the ability to spend their money?

• PSR power isn't to mandate businesses accepting cash.
• UK is more digital economy. Sweden- went quickly to digital payments, there was a correction (issues around payments for public services), so there are lessons to be learnt.

On Digital- concern about people who are digitally excluded? Education isn't enough. Open Banking & VRP open to fraud and user error?

• Digital cannot mean more complicated. For some people, can meet needs well. As we go through process, need to make sure that as we turn on capability, we do our job properly.

New Payments Architecture

• Program working towards go live date July 2026.
• Recently met key milestones, competitive tender now completed.
• Two regulators (PSR & BoE) reviewing proposal from Pay.UK and making sure proposals meet regulatory requirements- promote & protect competition, resilience and security.

• Simplified by removing BACS.
• Added back in more focused areas. Capability to future proof what is being procured. Allow some of the BACS services easily migrate across. Much more targeted additions.
• BACS strategy- what's the best way of meeting that payment need? A replacement for DD? Or traditional IT migration?
• Replaces faster payments. Deliver new modernised information standard (ISO2022). Introduce important capabilities so that interbank system (a2a) can work for instant payments. Eventually will be questions about BACS (should it be migrated or replaced?)

• Yes. PSR creating dedicated supervision team to ensure capability of Pay.UK.

• Should unlock additional capabilities to tackle payment fraud. Richer data, attach to a payment message, provide additional capability for tackling fraud.
• Still a lot to do with current system. Not waiting for NPA, but NPA will provide a more modern platform to improve fraud protection.
• Won’t make speed of payment issue any better, but will improve data.

• PSR Insisted on competition to drive cost down.
• Overseeing proposals for cost recovery. Needs to be spread out over time. Funded by participants. Recovered by users on a reasonable basis.

• Approach is to ensure banks and other payments firms pay for these services. At the moment, consumers dont face transaction costs. Structure will continue (so businesses will continue to pay).

Staff turnover

• Gone through transition and restructuring.
• Creates opportunities and opens opportunities for people to leave

• Costs are tightly under control. Reviewed every board. Year of delivery, critical to payments. Very confident in increase in costs.

• Not especially. Costs of acquiring staff in the market have gone up, but PSR motivation to work there is to make a difference, not financial.

Proceeding ended with the TSC pointing out that there are some large institutions at play here that are acting anti-competitively, and are trying to slow down all PSR action, or know that at the very worst outcome is that the PSR takes years to do a review that results in little to no outcome.