Could the launch of new Mobile-to-Mobile payment system “Paym” kick start the new regulatory regime from the Payment Systems Regulator?

First published on Lexology on April 29, 2014. Co-written with Emma Wright.

On 1 April the Financial Conduct Authority (FCA) announced the establishment of the new Payment Systems Regulator (PSR), created by the Financial Services (Banking Reform) Act 2013. The PSR, a subsidiary of the FCA, has been given the statutory powers to:

• promote effective competition in the markets for payment systems and the services they provide
• promote development and innovation in payment systems and
• ensure payment systems are operated and developed in a way that takes account of and promotes the interests of service users

The FCA has noted that the PSR will be a “competition-focused, utility-style regulator, similar to other economic regulators such as Ofcom”.

The PSR will not become fully operational until April 2015 and, in the meantime, the Treasury has undertaken a consultation on which payment systems should be “designated” for PSR regulation. Importantly, once a payment system is designated the regulator will have the power to regulate all of the participants within that payment system — including the operators of the payment system, any infrastructure providers and any payment service providers (including banks). Institutions which are already subject to the Payment Services Directive may also be concurrently subject to new regulation from the PSR.

This regulatory backdrop will be of interest to the Payments Council and participating banks in the recent launch of the new Mobile-to-Mobile payment system, Paym.

Launched on 29 April, the new mobile payment system will use the mobile telephone numbers of users to link that user’s mobile handset to their bank account details through existing mobile applications from banks. Any two Paym users can then exchange up to £250 a day through contactless Mobile-to-Mobile transfer by using only each others mobile telephone number.

At launch, the Bank of Scotland, Barclays, Cumberland Building Society, Danske Bank, Halifax, HSBC, Lloyds Bank, Stantandar and TSB Bank have all begun offering the PayM service to their mobile application users with Clydesdale Bank, First Direct, NatWest, RBS, Yorkshire Bank and the Nationwide Building Society to follow suit within the next year.

The Payments Council — a voluntary membership organisation of payment systems stakeholders — commented:

“The [Paym] service has the potential to link up every bank account in the country with a mobile number — millions of people will be able to use it this year and we look forward to expanding Paym even further, so everyone can benefit from this easy, secure new way to pay.”

A payment system of such significance will no doubt be of interest to the PSR, albeit with no decision about designation yet being taken, both in respect of protecting users interests but also in ensuring efficient competition within the payment systems market. The PSR, which will have concurrent powers with the Competition and Markets Authority, will have the power to set rules on access to Paym and may be able to mandate access to new entrants in the market if it deems Paym and its member banks to be too dominant. Companies that fall foul of the PSR could face fines or even an injunction, preventing them from operating within the payment systems market.

The Treasury, FCA and PSR are, at the time of writing, considering which payment systems will become designated for the purpose of regulation by the PSR with the initial drafting of the PSR rulebook being undertaken over the summer of this year. The Treasury will announce which payment systems are to be designated in April 2015, when the PSR becomes fully operational.