Let's call it PayOff

I’ve spent the last few days nose deep in the ‘Opening up UK Payments’ consultation document issued in March by HM Treasury. This paper outlines the government’s desire to impose utility style regulation on payments systems in the UK and is a follow up to the earlier consultation ‘Setting the Strategy’ about setting up a Payments Strategy Board to replace the Payments Council. Industry consultation came out clearly in favour of the Payments Strategy Board so equally clearly the government has decided to do something entirely different. It is now asking whether the regulator should be a) a completely new body, b) part of the FCA or c) spun off from one of the existing non-payments regulatory bodies.

We haven’t decided whether we are going to respond formally yet – we quite like the idea of payments as a utility and the separation of pipes from flows that might well result and clearly we like the idea of anything that encourages technical innovation, new players and new product development. However that’s possibly not in the spirit of what the government wants from the consultation. Nevertheless I went along to the Vendorcom discussion on the subject and as a result some of this post springs from the jolly afternoon we had pulling apart the document, although clearly the official Vendorcom response will be altogether more considered, detailed and precise.

The first thing we all noticed is that the document seems somewhat political. Why? The desire to replace the Payments Council first arose from its failed attempt to withdraw cheques from the UK economy. Some describe their failure as a debacle, others see it as parliamentary democracy doing its thing. However the government was left with the impression that the Payments Council’s main function was to impose the will of the banks, its stakeholders, on the public and to protect the big banks’ interests, stifling competition as well as crushing the desire of the noisier part of the public to carry on using outmoded payments methods. That sort of thing upsets the voters.

In addition, there is very little suggestion in the document that any resulting regulatory regime will have much to do with European regulation in this sector, which is interesting as an assumption to say the least.

Indeed one of the big issues with regards to any potential regulation is the question of boundaries. Regulation is easy to understand in a national context but payments aren’t really just national, especially now that the consultation has brought into scope the three and four party payments schemes (these were omitted from the first consultation). It’s by no means clear whether PayPal is in scope, by the way. Could the net result be payments service providers shifting operations to Luxembourg to avoid regulation and paying less tax as a result? Yet Europe barely features in the document. Could the government be assuming that by the time any regulator is set up, we’ll be out of Europe?

The second thing we noticed was how badly written it was – the language is imprecise and there are internal contradictions, for example clauses that explicitly rule out option one, the brand new independent regulator, and then clauses that rule it right back in again. Now, I know I can’t speak on the imprecise language front, especially if there’s a bad joke to be had from it, but I’m not writing Treasury papers.

There’s also a complete absence of recognition of any of the good things the UK payments industry does or has done, such as Chip & PIN, the work of Financial Fraud Action and the annual fraud reporting from the UK Cards Association.

It seems fairly obvious to me that the one thing that is needed from any new independent or partly independent regulator is a deep knowledge of the payments industry and banking and for that reason option b, tying it in to the FCA, seems to make most sense. Yet the document seems subtly to give the impression that the third option, piggybacking on an existing regulator is favoured.

Clearly, there’s fun to be had there. Chatham House rules forbid me from disclosing (except that it wasn’t me) who felt that SEPA was the obvious body. I wondered whether, if the whole cheques episode had really been such a horror story, we could involve the British Board of Film Classification (terminals have screens...) or perhaps the Forestry Commission to help the government sort the wood from the trees. More seriously, Ofcom makes a certain degree of sense.

In the end though, it all comes back to cheques and I can’t help wondering whether the Treasury has mistaken itself for Margaret Dibben, although on reflection she probably knows more about payments. Rather than ‘Opening up UK Payments’ the document should have been entitled ‘Let’s not further upset elderly Tory voters and the Daily Mail’.

On that basis I propose calling the new regulator ‘PayOff’.