The payments system – the mechanism by which all money is transferred from one account to another – is a vital, yet largely unseen, part of the financial system. For money to flow efficiently through the body economic, the payments system must operate smoothly. Payments are critical to the UK economy: in 2013, clearing systems processed over 7 billion clearing transactions, corresponding to a value of over £75 trillion. If the payments system fails or is disrupted, it could rapidly destabilise financial markets and cause widespread economic disruption.

This report examines the role of the payments sector as it prepares for a new regulator, and considers how this regulator can help to ensure innovation continues in the sector. It intends to help a non-expert audience better understand the current structure of the UK payments system and so promote greater public understanding of the way in which the system works and its importance to business and society.

Based on a wide-ranging literature review and drawing on the insights of an expert panel, Payment Power reviews each of the objectives for the new regulator – enhancing competition, spurring innovation and promoting consumer benefit. It concludes that a more solid evidence base must be built before action in these areas, especially in terms of any barriers to access. Finally, it envisions a broader role for the payments infrastructure – for example, helping to make Government more efficient – through the analysis of big data.