Rt Hon Andrew Tyrie MP Chair, Treasury Select Committee House of Commons London SW1A 0AA 1 February 2017

Dear Chair,

Following John Griffith-Jones and my appearance before the Committee on 18 January, I agreed to write to you on three specific topics.

The Committee asked about the membership and remit of the Payments Strategy Forum and how this compares to the membership and remit of the now-disbanded Payments Council.

You were also interested in whether any other developed countries have more than one payment system as well as the underlying infrastructure which supports these systems.

The Committee also asked for a list of the tools we use when assessing competition.

We have provided the Committee with further detail on these three areas. We are happy to provide any additional information should the Committee find it helpful.

Yours sincerely

Hannah Nixon Managing Director

Membership and remit of the Payments Strategy Forum and Payments Council

Prior to 2013, the UK payments industry was largely self-regulating, although the of England and the Financial Conduct Authority (FCA) had some limited regulatory roles. Industry decision making, operations, and delivery of innovation in the collaborative space were, in the main, led by the Payments Council, which had no formal powers. Between 2000 and 2013, several reviews of the industry highlighted concerns that:

 The industry was slow at innovating.  Users weren’t significantly involved in the planning for future developments.  Smaller and new payment service providers weren’t getting fair and open access due to various barriers, including the influence of big .  The industry’s decision making processes weren’t always transparent.

These concerns, together with the recognition that more competitive and innovative payment systems could promote more retail banking competition, led to the Government and Parliament establishing the Payment Systems Regulator (PSR), through the (Banking Reform) Act in October 2013. We became fully operational in April 2015, with strong regulatory and competition powers. We are completely independent of industry. Our Managing Director, Chairman and Board members are appointed by a combination of the Government and the FCA.

We have three statutory objectives; to promote competition, promote innovation and the interests of service users.

One of our key initiatives has been to establish the Payments Strategy Forum (the “Forum”) to harness industry and end-user experience and resources to work together to speed up and improve the quality of innovation where collaboration is needed. The Forum does not step into the competitive space for payment services. The Forum has no formal powers of its own – the PSR tasks the Forum, looking at the pace and direction of its work, and we would step in if its approach and proposals were incompatible with its objectives.

The Forum’s primary focus has been on how payment systems are affecting users and the changes needed to meet current and future needs of users. In November 2016, following extensive consultation with both users and providers of payment systems and services, the Forum published its ‘Payments Strategy for the 21st Century’. In 2017 the Forum will work towards implementing the changes it has identified.

Membership

The Forum has a diverse membership including larger banks, challenger banks, building societies, Fintechs, large users of payments such as Tesco, small business users and consumer representatives.

It has an independent Chair appointed by the PSR. The Chair’s role is to ensure that all members of the Forum are involved in its work and to aim to reach consensus on its decisions.

In contrast, the voting Board of the former Payments Council consisted of fifteen directors with equal voting rights, eleven of whom were industry-appointed from a cross section of Payments Council membership (predominantly payment service providers (PSPs)).

The PSR also established the Payments Community to influence the work programme of the Forum. The Payments Community is made up of over 320 organisations and continues to grow. Participation is open to everyone. The Community currently includes people and organisations with an interest in payment systems and services that have indicated that they would like to contribute to shaping the Forum's work.

The Payments Council no longer exists and has been replaced by the industry trade body, Payments UK since June 2015.

See Annex 2 for a full list of Forum and Payments Council Board members.

Annex 1 – Table outlining purpose and membership of key payments industry bodies

Payment Systems Regulator Payments Strategy Forum Payments Council Payments UK

Launched on 1 April 2015. Launched in October 2015, and set up by The Payments Council was an Launched in June 2015 (replaced the the PSR. organisation of UK financial institutions, Payments Council). Purpose: which set strategy for UK payment To make payment systems work well for all those that Purpose: systems from 2007 until 2014. Purpose: use them. The Forum leads on a process to identify, Payments UK is the trade association prioritise and help deliver initiatives where Membership: launched in June 2015 to support the The PSR is: it is necessary for the payments industry to The board of the Payments Council rapidly evolving payments industry. It  The economic regulator for the payment systems work together to promote collaborative consisted of: brings members and wider industry in the UK. innovation.  Independent non-voting chairman stakeholders together to make the  Independent, with its own managing director and  Fifteen voting directors UK’s payment services better for board Membership:  An observer from the Bank of customers and to ensure UK payment  Charged with strong competition and regulatory The Forum consists of a chair, independent England services remain world-class. powers from industry and 22 members.  Funded by the industry Membership includes user representatives Of the fifteen directors on the Board, Membership:  Accountable to Parliament and payment service providers. eleven were industry-appointed directors Payments UK's membership is drawn who represented a cross section of from a wide range of payment service Statutory objectives: Members were appointed jointly by the PSR Payments Council membership, and four providers as well as organisations with  To ensure that payment systems are operated and and the Forum chair following a public independent directors. a commercial interest in payments developed in a way that considers and promotes nomination process during the summer of such as consultancies. the interests of all the businesses and consumers 2015. that use them A full list of members and their Board  To promote effective competition The (BoE), the Prudential can be found at  To promote the development of and innovation in Regulatory Authority (PRA), the Financial www.paymentsuk.org.uk payment systems Conduct Authority (FCA) and the PSR are observers on the Forum. PSR powers: The PSR has a range of strong regulatory and The PSR also provides the secretariat to the competition powers. Forum.

Annex 2 - List of members of the Forum as at February 2017 and Payment Council Board members as at May 2015.

Payments Strategy Forum Members as at February 2017 Sector Chairman – Ruth Evans Consumer representative

Alan Smith, Head of Payments and Banking Services, Post Office Small, (payment service provider) Becky Clements, Head of Industry Engagement and Payment Change, Metro Bank Small, Challenger bank (payment service provider) Carl Pheasey, Head of Policy, Money Advice Service Consumer / end user representative

Carlos Sanchez, CEO, Orwell Group Authorised Money Institutions (payment service provider) Faith Reynolds, Member, Financial Services Consumer Panel Consumer / end user representative

James Emmett, Chief Operating Officer, HSBC Bank Large bank (payment service provider)

Hamish MacLeod, Director, Mobile UK Large corporate users

Katherine Horrell, Group Treasurer, Centrica Large corporate users

Marion King, Group Director of Payments, Royal (RBS) Large bank (payment service provider)

Mark Lyonette, Chief Executive, ABCUL Small, Challenger bank (payment service provider) Michael Maier, Deputy CEO, Fidor AG Small, Challenger bank (payment service provider) Mike Smith, Commercial Director, Raphaels Bank Small, Challenger bank (payment service provider) Neil Lover, Head of Payments and Financial Crime, Coventry Building Society Small, Challenger bank (payment service provider) Brendan Pielow, Crown Representative (Banking and Payments), Cabinet Office Government as largest user of payment systems Otto Benz, Director: Strategic Payments, Virgin Money Small, Challenger bank (payment service provider) Philip McHugh, Chief Executive, Barclaycard Business Solutions Large bank (payment service provider)

Russell Saunders, Managing Director, Global Payments, Large bank (payment service provider)

Ruth Wandhöfer, Global Head for Regulatory and Market Strategy, Citi Bank Large bank (payment service provider) Sian Williams, Head of National Services, Toynbee Hall Consumer / end user representative

Tony Shaw, Payments Development Manager, Tesco Plc Retail/ end user representative

Thaer Sabri, Chief Executive, Electronic Money Association FinTechs and other smaller payment service providers

NB: Adam Marshall, Director General, British Chambers of Commerce (BCC) stepped down in December 2016.

Payments Council Board as at May 2015 Sector Chairman - Gerard Lemos CMG Independent Director Interim Chief Executive – Maurice Cleaves Industry Independent director - Sarah Chambers, Expert in regulation, competition and consumer policy Independent director - Robert Lerwill Chartered accountant Independent director - Christine Farnish CBE Financial services, public policy and regulation

Independent director - Clare Spottiswoode CBE Mathematician and economist

Director - Andrew Slough, Payments Industry Director, HSBC Bank (payment service provider) Director - Norman Wren, Santander Bank (payment service provider) Director - Paul Horlock, Head of Payments, Nationwide Building Society Building society (payment service provider)

Director - James Barclay, Executive Director, J.P. Morgan Bank (payment service provider) Director - Jamie Martin, National Australia Group Europe Ltd Bank (payment service provider) Director - David Carrie, Operations Director, Co-operative Bank Bank (payment service provider Director- Russell Saunders, Managing Director Global Payments, Lloyds Banking Group Bank (payment service provider) Director - Steve Allen, Head of Global Payments, Bank (payment service provider) Director - Neil Lover, Head of Payments and Cards, Coventry Building Society Building society (payment service provider)

Director - Julie Connor, Head of Payment Operations Strategy, Bank (payment service provider) Director - William Higgins, Managing Director, RBS Bank (payment service provider)

Payment systems and infrastructure in other countries

The PSR regularly meets with representatives of payment systems and central banks of other countries. This helps us understand how their payment systems are operated and how they compare to those in the UK.

In addition to these regular meetings, in December 2015 we commissioned a report (Lipis report) comparing the UK’s payment systems to 12 other countries – Australia, Belgium, Brazil, Canada, Denmark, Germany, Italy, Japan, New Zealand, Singapore, Sweden and the US. This report was part of our Infrastructure Market Review.

The Committee wanted to understand whether other countries had competing or multiple infrastructure providers for payment systems. The PSR through our Infrastructure Market Review is seeking to introduce effective competition in the provision of central infrastructure, including allowing multiple providers of that infrastructure. Currently VocaLink provides the infrastructure for three retail interbank payment systems in the UK –Bacs, Faster Payments and LINK.

A number of countries have or are developing models where there are or would be opportunities for multiple competing infrastructure providers for payment systems. The SEPA (Single Euro Payments Area) arrangements in Europe and the new faster payments system being developed in Australia are examples of this type of arrangement. In these cases, there are common system rules and standards, but participants in the payment systems, such as banks, can choose from a range of competing infrastructure providers or provide infrastructure themselves.

We are happy to provide the Committee with more detail about the payment systems and infrastructure arrangements in other countries if that would be helpful.

PSR’s approach to assessing competition

We are an economic regulator and concurrent competition authority. In line with other UK economic regulators and competition authorities (such as the Competition and Markets Authority and the FCA), we adopt an approach to assessing competition based on recognised economic principles. These principles are used across the work we do.

In assessing whether competition is working well, we consider a range of evidence and indicators, including:

• Number and range of suppliers • Customer choice in products • Prices and profitability • Service quality • The level of innovation • Ease of switching for customers • Barriers to entry

We have used this approach, for example, in the two market reviews we have conducted:

 The review into the supply of indirect access to payment systems for payment service providers found that the market was competitive, but we identified some actions that were being taken that could further improve competition and outcomes for customers.

 The market review into the ownership and competitiveness of the central infrastructure for the Bacs, Faster Payments and LINK interbank payment systems found that competition was not effective. We are currently considering potential remedies to address the lack of effective competition.