HM Treasury - Setting the strategy for UK payments
Credit unions, as deposit-taking financial institutions, are closely tied to the payments system infrastructure since making and receiving payments is a central element of their business. In recent years the sector’s involvement has increased through the development of the Credit Union Current Account and the Credit Union Prepaid Card both of which rely upon agency arrangements. As the sector continues to grow, in line with the Government’s ambitious vision, credit unions’ reliance upon developments in payments systems is likely to increase as they develop collaborative solutions to both increase access to current account and prepaid card services and develop new services based on online, telephone and mobile payment systems. Indeed, the development of, and increased participation in, such services is a central element to the sector’s strategy for growth and reaching self-sustainability as supported by the Government. It is in this context that we respond to the current proposals.
Currently the opportunities for the credit union sector to influence the development of payments strategy are limited. The sector is involved, through ABCUL, in the User Forums which go some way to informing the Payments Council’s work however, as the consultation document sets out, the powers of these Forums are limited and their influence only marginal.
Given the context set out above, the credit union sector is keen to be more closely involved in the development and promotion of new and existing payments systems. Likewise, the sector is entirely in support of the Government’s ambition to have UK payments networks that facilitate competition through open access on reasonable commercial terms.
As such, we would like to express our broad support for the reforms outlined in both Options 1 and 2 in the consultation document to be implemented in tandem.
Option 1 – Enhanced self-regulation
We are in favour of the proposals set out since we believe they will create the basis for a more transparent, accountable and responsive framework for setting and implementing payments strategy. We are in agreement that a wider range of voices ought to be taken into account in respect of developing strategy since, whilst the system providers of course play a central role in payment strategy, payment infrastructure is of increasingly fundamental relevance in the modern economy. Furthermore we agree with proposals to increase transparency through the publication of regular progress reports and independent performance reviews.
That said we are concerned that there is the possibility of undue burdens being placed upon smaller providers and non-provider members of the Council were reform of funding arrangements to expect a significant new contribution from them. Whilst we appreciate that there would appear to be a case for funding to be tied more closely to reformed membership, any new expectations should be based on the principle of proportionality and the recognition that whilst society and the economy as a whole increasingly relies upon efficient, open and effective payments infrastructure (thus necessitating their representation in the Council structures), the proceeds from its use are enjoyed only by the ultimate providers of said infrastructure.
We agree, likewise, that the Payments Council, should focus its efforts entirely upon the development of a fit-for-purpose payments system infrastructure and should not play a lobbying or trade association role – there are various bodies already in existence which represent the interests of the payments service providers and therefore it would seem appropriate that the Council focus on its regulatory and strategy-setting role avoiding any potential for or appearance of a conflict of interest.
Option 2 – Creation of a Payments Strategy Board
We agree that the creation of a Payments Strategy Board taking on the strategy setting functions currently held by the Payments Council, in connection with the reforms put forward in Option 1 to the Payments Council itself, would represent a significant improvement on the current situation. This would allow the Payments Council to focus upon implementation, guided by the Board’s direction.
It would seem to make sense, were the creation of a Payments Strategy Board pursued, that it sit within the structures of the Financial Conduct Authority given the obvious relationship between the responsibilities of the two.
We agree with the proposed objectives of such a body, particularly with the promotion of access to payments networks by the industry on reasonable terms. This, as we have seen, is critical to the development of the credit union sector and to ensuring a competitive market for the provision of payment services which are becoming increasingly important in the modern economy. We are also in favour of the proposal to draw a broad membership representing a range of interests on to the group which will be essential if the Board is to achieve its objectives.
Again, we would urge careful considerations of the principles of fairness and proportionality when addressing the funding arrangements for the Board. Small players such as credit unions, though reliant upon payments systems, are less able to meet significant new costs and have seen the burden of regulation steadily increase in recent years. Likewise, as smaller players, the sector’s relative position in the payments market is tiny and this should be reflected in any new charge it is expected to meet. As set out above, while the importance of payment systems in the economy necessitate a wide membership base for strategy-setting bodies, the financial benefits of running the systems flow almost entirely to the providers of this infrastructure.
Efficient, effective and reliable payment systems which are available to all providers at a reasonable cost are critical to the future development of the credit union sector. As such we are in broad support of a combination of Options 1 and 2 proposed by the consultation which we agree will enhance the strategy setting arrangements for payments infrastructure.
We are keen that funding arrangements for the reformed regime should be proportionate and thereby reflect the minor position credit unions occupy in using the payment infrastructure.
Please download the full response on the right.