The UK’s Payment System Regulator (PSR) has stepped back from imposing financial penalties on Visa and Mastercard scheme and processing fees, despite evidence that the firms are running an effective duopoly in the supply of services to merchants.
The watchdog’s market review into card sheme and processing fees concludes that there is currently “no effective competition preventing the two biggest schemes raising prices” and that the supply of services to merchants is “not working well”.
The PSR found that over the past five years, and after taking account of volume changes, Mastercard and Visa have increased their scheme and processing fees by more than 30% in real terms.
“There is little evidence that the quality of service has improved at the same rate,” says tthe PSR.
UK businesses have little choice but to pay increased fees as Mastercard and Visa cards account for 95% of transactions using UK-issued cards, while non-card payment methods are often not effective competitive alternatives for businesses.
Over the course of its market review, the PSR also found evidence that Mastercard and Visa provide complicated and unclear pricing statements to card acquirers. Moreover, acquirers cannot access information about fees in an easy way and that there were frequent delays and insufficient notice periods from Mastercard and Visa to implement fee changes.
To make matters worse, there was very little ability for acquirers to negotiate any fees.
But rather than coming down hard on the card scheme’s fee structures, the watchdog has instead suggested a series of remedies that aim to improve transparency around costs and ensure acquirers and business are given clearer information about the services provided.
The remediation effort will make obligations on Mastercard and Visa to explain, consult on and/or document the reasons for price changes and the pricing of new services, and provide more detailed financial information to the PSR going forward.
Both Mastercard and Visa have rebuffed the accusations of price-gouging, pointing out the significant ongoing investments in their networks to ensure operational resilience and root out fraud.
At the same time, other payments options are appearing for merchants with the advent of open banking. The PSR is acively pushing to unlock greater use of account-to-account payments – including using open banking – as a way to bypass the card scheme’s networks.
Chris Hemsley, managing director of the PSR, says: “Every time someone uses a Mastercard or Visa card, UK businesses have to pay fees. These fees have significantly increased over recent years, and those increases cannot be explained by improvement in service quality. We have also identified concerns about the transparency and quality of information available to those providing card services to businesses. Competition does not appear to be protecting businesses effectively.
“This leads us to provisionally conclude that the market is not working well.”
The PSR is seeking feedback on its interim report from anyone with an interest in card payments in the UK – particularly businesses, issuers, acquirers, card scheme operators, and cardholders.
The window for giving feedback is open until 30 July 2024. A full and final report will be published in Q4 2024.
A parallel PSR investigation of interchange fees last year called for the reintroduction of a cap on interchange cross-border transaction charges, which was scrapped after the UK left the EU.
