Britain's biggest banks have been told to ditch their stake in the core system which govern how the majority of payments in the UK, from salaries to bank transfers, are made in order to increase competition in the market.
Barclays, Royal Bank of Scotland, Lloyds, HSBC and Santander are among 18 banks which collectively own Vocalink, the system underpinning 90 per cent of BACS salary payments as well as other payments such as direct debits worth a combined £6 trillion each year.
The Payments System Regulator has now told them that they should sell their stake in Vocalink to open up the market to competition and innovation.
That's good news for startups in the fintech space but presents banks with another front in the battle against challengers.
“The payments industry has evolved at a steady pace, but now is the time to ask whether or not it is operating best practice. The evidence we have gathered shows that common ownership is hampering competition and the speed of innovation in the market," said the regulator's managing director Hannah Nixon.
“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.Our proposals will increase competition and create more opportunities for challengers, fintechs and other organisations looking to enter the market. This will create the conditions for greater innovation – which is in the interests of those that use the infrastructure services directly, and the UK economy as a whole.”
It has also suggesting a shake up of the system governing payments to bring in new rules for procurement and creating industry-wide standards for messaging between different payment systems.
"The government set up the Payment Systems Regulator to drive competition in Britain's payment system," said economic secretary to the Treasury Harriett Baldwin. "Today's report is an important step towards a more open payment system which will benefit millions of consumers and firms who rely on it for making payments on a daily basis."