The Building Societies Association (BSA) represents mutual lenders and deposit takers in the UK including all 45 UK building societies.  Building societies have total assets of nearly £330 billion and, together with their subsidiaries, hold residential mortgages of over £230 billion, 18% of the total outstanding in the UK.  They hold over £230 billion of retail deposits, accounting for 19% of all such deposits in the UK.  Building societies account for about 28% of all cash ISA balances.  They employ approximately 39,000 full and part-time staff and operate through approximately 1,600 branches.

The BSA welcomes the opportunity to respond to the FCA’s consultation on payment systems regulation.

Building societies largely fall within the FCA’s definition of Agency Bank / Indirect payment service provider (also referred to as indirect participant) as set out in Annex 4 of the consultation document.  The FCA defines Indirect payment service provider as a payment service provider that accesses the payment system through an agency agreement (i.e. via sponsorship) with a direct member (i.e. one of the major UK banks).  The BSA response therefore narrowly focuses on indirect payment service providers and agency arrangements.  We have not sought to answer the questions set out in Annex 3 of the consultation document, as the questions are more relevant to other categories of payment participant.

The BSA agrees with the OFT finding, as set out in UK Payment Systems – How regulation of UK payment systems could enhance competition and innovation (July 2013) and repeated in the consultation document, that indirect participants have limited choice and bargaining power in negotiating the terms of access with direct members.  We share the concern that lack of transparency and comparability in bilateral agency arrangements may make it difficult for indirect participants to evaluate and change their arrangements.

The BSA intends to conduct a survey of our members to get a better understanding of existing agency arrangements and issues.  In the meantime, anecdotal evidence from building societies suggests that there are problems with communication between agency and sponsor banks, a lack of consultation and forewarning about future payment industry initiatives and complex contractual arrangements which act as a barrier to easily transferring business from one sponsor bank to another.  In addition, sponsor banks are retail competitors to building societies and it may be that agency bank services are not seen as a commercial priority for the sponsor banks.  This, coupled with the relatively restricted choice of sponsor banks, means that there is little incentive for sponsor banks to raise their game and improve the services they provide to indirect participants.  We hope to be able to expand on these issues following our member survey and plan to feed this into future consultation responses.

The BSA has a good relationship with the Payments Council. We are aware of the Payments Council’s work on its Payments Roadmap and we have seen the high level findings of its review of agency arrangements and challenger access.  We support the Payment Council’s proposals to improve agency arrangements.  In the short term, this could include relatively simple solutions which should be quick to implement; such as a commitment from the sponsor banks to provide a single point of contact for each of its agency partners so as to help improve communication and moves to standardise contractual arrangements to help indirect participants to compare terms of service across the sponsor banks and reduce the complexity of transferring arrangements to another provider.  In the long term, alternative arrangements for direct access to payments systems should be created which would enable current indirect participants and new providers to bypass the need to use a sponsor bank at all.

The BSA welcomes the creation of the new Payment Systems Regulator (PSR).  When the PSR is fully operational in April 2015, it should make improving agency arrangements a priority.  While it will be for the payments industry to develop and deliver on these improvements, we welcome the pressure that the PSR can bring to ensure that these changes are implemented quickly.  

The BSA looks forward to working with the PSR and to contributing to future consultations on changes to the payments industry.

15 April 2014