Payment systems

22 May 2003

Some progress has been made with competition issues relating to payment systems but important questions remain requiring further action, an OFT study concludes.

Following its three-month study, the OFT has published a report containing:

• a factual update on developments over the last three years in the UK's money transmission clearing systems (direct debits, standing orders, direct credits, cheques, paper credits and instantaneous credits)
• an account of recent OFT competition work on card networks.

The report therefore covers all the main payment systems. Its scope does not extend to retail banking services.

Download UK payment systems (pdf file 641 kb) 

The report welcomes the industry's progress in agreeing proposals to shorten clearing cycles and separate the ownership of clearing schemes from their technical infrastructure in BACS. The OFT calls on the industry to commit to a firm implementation date for these developments.

Further action for the OFT includes:

• examining the effectiveness of the commitment within the Banking Code to inform consumers about the length of clearing cycles. The OFT will be discussing this issue with the industry
• concluding the Competition Act investigation into the level at which Mastercard set their multilateral interchange fee
• determining whether action is required on access to merchant acquiring and on debit card networks
• continuing to monitor the effectiveness of the Competition Commission undertakings relating to the supply of banking services to small and medium-sized enterprises.

See press release.

Background

On 27 November 2002, the OFT announced its intention to examine recent payment system developments and their implications ahead of the Government's planned introduction of legislation. The terms and reference were announced after consultation with interested parties.

The publication of the Cruickshank report in March 2000 identified a number of competition, efficiency and incentive issues in the UK's main payment system markets. The Government has recently reaffirmed its commitment to legislating for the OFT to be granted sectoral regulatory powers which will enable it to promote effective competition in these markets.

Back to: Completed market studies