The Payment Systems Regulator, which launched on Wednesday, will open up access of the infrastructure underpinning financial transactions, from mobile payments to house purchases.
and control the main systems, such as Faster Payments, which are used to make money transfers.
Hannah Nixon, managing director of the new watchdog, told the Financial Times that the regulator would ensure access unrestricted access to the systems.
Challenger banks and digital payment businesses such as PayPal currently have to pay expensive set-up costs to access the systems directly, or are charged to go through a large bank, creating an uneven playing field.
“We want to break open the control of payment systems, so it’s not just the big banks that control them who can use them,” Ms Nixon said.
“We need to make sure all those who use them or need access can have a real voice in the way these things are controlled — whether it’s a challenger bank, or a payment innovator.”
The regulator will work on allowing faster and fairer direct access to the systems and will require incumbent banks to subscribe to a code of conduct making the terms of gaining access clearer.
If the banks do not make changes to allow more open access, the regulator has the power to intervene, Ms Nixon said.
Consumer group Which? recently urged the regulator to break the banks’ stranglehold on payment systems to clear the way for smaller challenger banks and boost competition in the market.
Critics argue that newer players find it hard to compete with the large banks on products such as current accounts because of their expensive set-up costs, leaving customers with fewer choices.
Ms Nixon is also reviewing the ownership of Vocalink, the company that provides the infrastructure underlying the payment schemes, which is currently controlled by a consortium of big banks and building societies.
“There are questions of competitiveness of the infrastructure and whether its ownership gets in the way of innovation,” she said. “So it could mean breaking up the ownership of Vocalink. All options are on the table. We’re looking carefully at what impact those options could have.”
However, the watchdog’s remit falls short of regulating digital payment providers such as PayPal, although it will “create the conditions” for innovative solutions to survive, Ms Nixon said.
The regulator has also established a forum for the industry, which will consider issues such as current account switching. This follows a Financial Conduct Authority review of the effectiveness of the seven-day switching service launched in 2013.
One idea backed by some Conservative MPs is an ability to switch banks instantly while retaining the same account number — in the same way as changing mobile phone providers.
Banks warn that the proposal, called account number portability, could cost up to £10bn to implement.
“The real question the industry needs to focus on quickly is what do we want from our central payments systems, and would account number portability add value? The jury is out,” she said.
She added that the idea of a “brake mechanism” to stop a potential run on a bank if a certain amount of deposits were withdrawn through account number portability, would be considered by the forum.