The Payments Systems Regulator (PSR) believes that Mastercard and Visa, the two biggest card schemes in the UK, are not facing an effective level of competition.
In its interim report as part of a market review of card schemes and processing fees, PSR concluded that Mastercard and Visa remain unchallenged in three key areas.
The regulator asserts that there is no effective competition to Mastercard in the field of core scheme and processing services. This is significant to UK payments due to the role cards play for consumers and businesses in retail payments, a role PSR has described as ‘essential’.
In other areas of optional services, PSR believes that competition and choice is limited and when present cannot match the ‘one-stop shop solution’ offered by the two US-based international payments giants.
The domination Mastercard and Visa have secured in UK payments is not positive for businesses dependent on their services either, PSR believes, due to fees rising over recent years. PSR points to the fact that Visa and Mastercard cards now account for 95% of transactions using UK-issued cards.
Chris Hemsley, Managing Director of PSR, said: “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.”
Competition, or perhaps the lack of thereof, in UK fintech and payments has become a focal area for the country’s financial regulators. The role some of the world’s biggest firms, including Big Tech companies, are playing in this has caught significant attention.
The Financial Conduct Authority (FCA), for example, has spoken publicly about the huge role Big Tech firms are now playing in UK payments. The FCA has been consulting on potential instances of data disparity between Big Tech companies and other fintech stakeholders.
Returning to PSR’s report and its focus on card payments, the regulator has detailed three other areas it believes are impacting competitiveness. Firstly, PSR claims that Mastercard and Visa provide what it describes as “complicated and unclear pricing statements to card acquirers”.
In addition, Visa and Mastercard are accused of delays and insufficient notice periods for implementation of fee changes. Card acquires cannot easily access information about fees and there is ‘very little agility’ for fee negotiation, PSR maintains.
PSR does have solutions to the problems it has identified, however. These include increased transparency to inform decision making; introducing obligations for Mastercard and Visa to explain, consult and document reasons for price changes; and requiring greater reporting of financial information to improve scrutiny of the duo’s UK operations.
These issues have not just been noted by the PSR. Commenting on the regulator’s findings, Stuart Barclay, SVP Growth at Volt, said: “Interchange fees are among the primary pain points faced by UK merchants accepting card payments. Many tell us how frustrating they are, especially when they rise without warning. While we welcome the news that Visa and Mastercard will be required to share more information, it won’t make interchange fees’ inherent problems go away.”
The regulator is now seeking feedback from businesses, issuers, acquirers, card scheme operators and cardholders. The window for feedback will close on 30 July 2024, after which PSR will consider feedback and publish its final report on fees in Q4 2024.
“We are consulting on these provisional findings,” Hemsley remarked. “Should we conclude the market isn’t working well, we are considering remedies aimed at providing businesses and acquirers with more accurate and relevant information about the card services they use.
“The remedies would also increase transparency around Mastercard and Visa’s UK operations, allowing the PSR to better hold them to account.”
