Currently, payment systems are owned by a small number of banks, which also own the VocaLink system that is used to process 90% of UK salary payments.
Apart from salaries, over 70% of household bills and nearly all state benefits are processed via VocaLink. It processed 11 billion transactions with a value of £6 trillion last year.
The regulator’s review identified that the dominance of Vocalink and the small number of banks that own it has a negative affect on innovation and competition in the industry.
It proposes that the banks sell part of their stakes in VocaLink to pave the way for competitors, challengers, fintechs and other organizations who plan to enter the market.
PSR managing director Hannah Nixon said: "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.
"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."
VocaLink was formed out of the merger between Voca and LINK Interchange Network in July 2007.
VocaLink is owned by a consortium of 18 banks and building societies including Barclays Bank, Royal Bank of Scotland group, Lloyds Banking Group, HSBC and Santander.
Image: The VocaLink system is used to process 90% of UK salary payments. Photo: courtesy of anankkml/FreeDigitalPhotos.net.
