Bank of England opens its payment system to non-banks to allow payment competition from fintech firms
The Bank of England (BoE) has opened its Real-Time Gross Settlement (RTGS) payment service, so it can be used by fintech organisations, and not just traditional banks and building societies.
The decision to make ‘non-bank payment service providers’ eligible to apply for a settlement account in the Bank’s RTGS system comes as people increasingly use mobile apps to manage their bank accounts, transfer money, and even pay bills.
To this end the BoE published a detailed framework to make this happen. The BoE had already said last year it would publish a timetable for the update to its 20-year-old RTGS service, as seeks to deliver the platform’s successor in three years’ time.
The RTGS platform is the Bank of England’s main system for handling bank-to-bank payments, and on an average day it processes around £500bn, or nearly one-third of the UK’s annual gross domestic product.
The bank has previously said that the stability of RTGS remains its core objective, but it is also seeking to enable new technologies and competition where possible.
And now it has made non-bank payment service providers (PSPs) eligible to apply for a settlement account in the Bank’s RTGS system.
This means that when fintech firms hold their own settlement account at the Bank, they can then “obtain direct access to the UK’s sterling payment systems that settle in sterling central bank money.”
Until now, fintech firms have had to negotiate the use payments systems with traditional high street banks such as Natwest, HSBC, and Barclays.
There are roughly 50 banks and building societies in the UK that have settlement accounts with the BoE’s RTGS system. But there are reported to be around 450 non-bank payments services providers.
With this development, fintech firms can now access systems such as Faster Payments, Bacs, CHAPS, LINK, Visa, and the new digital cheque imaging system, when it goes live.
“This policy change is designed to ensure that the UK’s payments infrastructure keeps pace with the changing structure of the financial system,” said the BoE. “It marks the first step in a much broader renewal programme designed to deliver a materially stronger, more resilient, flexible and innovative sterling settlement system for the United Kingdom in the years ahead.”
The thinking is that these changes will enable non-bank PSPs to compete on a more level playing field with banks, as it will allow fintech firms to offer a wider range of payment services and dependency on traditional banks will be reduced.
This will in turn apparently increase competition in the provision of payments services.
“I am delighted that the Bank of England, the FCA and HM Treasury are working together to stimulate competition and innovation in payment services by widening access to the UK’s payment systems to non-bank payment service providers,” said the Governor of the Bank of England Mark Carney.
“In parallel this should support financial stability through greater diversity and risk-reducing payment technologies,” he added.
The first non-bank PSPs is expected to join RTGS during 2018, as a number of legislative changes are needed to complete their passage through Parliament. And non-bank PSPs are also expected to demonstrate compliance with the BoE’s risk management framework.
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