LONDON, March 20 (Reuters) - Britain's payments

regulator said on Wednesday the sector faces "targeted

intervention" to increase competition and remove barriers to

innovation and "pockets of market power" that leave customers

picking up the bill.

Financial regulators in Britain face pressure to make it

easier for start-ups to enter sectors like payments, a magnet

for fintechs, to boost economic growth.

The Payment Systems Regulator (PSR) has consulted on

expanding the use of "open banking" or third party payment firms

being given access to bank accounts, with a customer's

permission, to offer rival services.

It wants "swift action" to roll out the ability of customers

to connect payment providers to their bank account for agreed,

"low risk" recurring payments, such as to local councils or

utilities.

PSR Managing Director Chris Hemsley said he has "heard loud

and clear" from the consultation that some market participants

feel the PSR is proposing to intervene too much, particularly in

controlling some prices, but he indicated some mandatory changes

were likely.

"We are exploring the need for targeted regulatory

intervention to make this work, like mandating the participation

of sending firms," Hemsley told industry body the Payments

Association's Pay360 conference.

"Creating new markets sometimes required targeted regulation

to support rule-making and control pockets of market power."

He drew parallels with the telecoms market, where he said

intervention unlocked competition. "That is, essentially, my

starting point when approaching open banking payments," he said.

Hemsley said much has been achieved in improving payments

over the past 15 years, with Britain comparing well with other

countries regarding speed and security of payments.

"Have we completed that journey? In short, no," Hemsley

said, adding there were no "price signals" to push customers to

switch to better value service providers.

"They ultimately pick up the cost of payments faced by

merchants. They do not see this cost, of course, as it is buried

in the price of goods and services," he said.

In practice, retailers have to accept both Mastercard ( MA )

and Visa, the American duo that dominate cross-border payments,

Hemsley said. The PSR has proposed a cap on cross-border

interchange fees on retailers charged by Mastercard ( MA ) and Visa.