LONDON (Reuters) - Banks should cut their stakes in one of Britain’s core payments systems as part of a fundamental change to increase competition, Britain’s Payment Systems Regulator (PSR) proposed on Thursday.
The UK payments network is a patchwork of infrastructure built over many years and the PSR was set up after lawmakers called on the government for changes after customers suffered a string of glitches.
The PSR said the VocaLink system, which processes more than 90 percent of salaries, over 70 percent of household bills and almost all state benefits, is owned and controlled by a relatively small number of lenders.
“The evidence published today indicates that the common ownership of this infrastructure provider by this small number of banks is having a negative effect on innovation and competition in the industry,” the PSR said in a statement.
“As a result, the PSR is proposing that these banks sell part of their stakes in VocaLink in order to open the market and allow for more effective competition and innovation.”
VocaLink, owned by a consortium of 18 banks and building societies including Barclays (BARC.L), RBS (RBS.L), Lloyds (LLOY.L), HSBC (HSBA.L) and Santander (SAN.MC), processed more than 11 billion transactions worth 6 trillion pounds ($8.4 trillion) last year.
The PSR will consult on the proposals until April 21.
The regulator said the way operators procure payment infrastructure prevents other potential providers from entering the market.
It proposed a competitive and transparent procurement process that will be independently monitored. The regulator also proposed a common electronic messaging standard to make it easier for new entrants.
“There needs to be a fundamental change in the industry to encourage new entrants to compete on service, price and innovation in an open and transparent way,” PSR Managing Director Hannah Nixon said.
The proposals could create opportunities for new types of payments companies from the so-called “fin tech” sector, Nixon said.
Editing by David Holmes