Access to bank accounts is enabled by new regulations, but this may not be enough to stop banks from preventing Payment System Providers (PSPs) from trading and the most progressive companies from moving elsewhere
On January 13th two new regulations (Regulation 104 and Regulation 105) come into effect from the Payment Systems Regulator (PSR).
Under these new regulations, banks and payment system operators must submit applications for account access in a proportionate, objective, and non-discriminatory way (‘POND’). The two new regulations, Regulation 104 and Regulation 105, are designed to ensure effective competition and innovation in the market for payments systems, and that these are developed in a way that considers and promotes the interests of their users.
|New Payments Regulations|
|Regulation 104||Regulation 105|
|Regulation 104 sets out to improve indirect access to designated payment systems.
It requires direct participants in Bacs, CHAPS and FPS who offer indirect access to:
• Treat requests from payment service providers (PSP) for indirect access on a POND basis
• Not restrict access more than necessary to safeguard against specific risks (e.g. operational risk or business risk)
• Provide complete reasons for the rejection if the participant refuses a request for access
The PSR will monitor this through complaints and an initial info request on indirect access providers (IAPs).
|Regulation 105 sets out to improve direct access to bank accounts.
It requires all regulated banks in the UK to:
• Grant access to payment account services on a POND basis
• Provide the criteria it applies when considering requests for access
• Provide duly motivated reasons to the FCA/PSR if it refuses a request for access or withdraws access
• Where access is granted, it must be ‘sufficiently extensive to allow the PSP to provide payment services in an unhindered and efficient manner’
The FCA and PSR have co-competence for this article and will monitor this through complaints and notifications.
Protecting access and competition
Over the last four years the Emerging Payments Association (EPA) has highlighted how it is becoming increasingly difficult to open a bank account if you are a business, PSP or financial institution. The EPA has also highlighted the increased level of de-risking by UK banks that is shutting the accounts of such businesses in order to reduce the banks’ levels of exposure to risk and improve their margins.
The cost of complying with regulations has risen significantly recently, and this, along with pressure from corresponding banks and higher capital requirements costs, has led to the erosion of margins for banks providing business bank accounts. As a result, banks are simply removing such accounts from their portfolios.
The silent protestors
Many PSPs report a key challenge as being able to complain to the PSR formally. They say are concerned that if they issue a formal complaint, this might affect their ability to obtain other banking services. It is also likely that by the time a PSP raises their concerns with the PSR, it may well be too late for that PSP to preserve its banking services. We have seen examples where PSPs had hoped that they would be able to negotiate to maintain services, but this did not happen in time.
To add to this problem further, once a PSP has been ‘ceased’ by a UK bank, any application to obtain banking from another UK bank will be questioned. The new bank will likely question why the institution has been ceased or declined a service from another UK bank, and may be less likely to provide banking services as a result.
Stand up and be counted
The lack of public protest by companies whose accounts have been wrongfully or unfairly closed prevents us from highlighting what looks like counter-competitive activities by banks. While the EPA wants to be the voice of the community, we need specific examples to show to the PSR, especially once 104 and 105 have come into force.
These new regulations are definitely welcomed by the emerging payments industry. With Brexit on the horizon it is even more important for the UK to maintain its status and attractiveness as a leading FinTech hub.
It’s also important that the UK banking sector is seen to be ‘open for business’. Challenger banks and other payment providers are yet to deliver the full suite of services that are on offer from the main UK banks. I suspect we have at least another 12 to 18 months before we have real alternatives to the main banks in the UK market.
In the meantime, many financial institutions are maintaining a patchwork of banking services and are spending considerable time navigating these banking challenges daily in order to keep their businesses afloat. What we need is to hear specific examples of where PSPs and businesses are unable to open a bank account, or have their bank accounts shut with no fair explanation or opportunity to rectify any issues the banks may have.
So these new regulations are the right step forward, and hopefully over the next 18 months we will start to see these challenges ease in the UK market. In the meantime, any company that is unfairly treated, or that believes their bank has contravened 104 or 105, should make their voice heard.
It is only by highlighting these practices that we can expect to promote the UK’s Fintech hub as being truly open for business.
CEO, Acquiring and Card Solutions, Paysafe Group and Chair, Emerging Payments Association