The Payment Systems Regulator (PSR) has concluded that an increase in Mastercard and Visa processing fees has had a big impact on the costs of business for UK companies.
Mastercard and Visa dominate the UK card issuing and payments processing space with over 95% of transactions occurring across the duo’s payments rails, covering both online and retail commerce.
The PSR has been investigating whether or not the companies’ dominance has been negatively impacting competition and conditions for businesses, launching a consultation late last year.
In a report published today, the PSR states that the duo increased processing fees to cards acquired by ‘at least 25% since 2017’. This has cost British businesses ‘at least £170m extra per-year’, the regulator asserts.
It emphasised that this “increased cost of doing business in the UK impacts on UK businesses’ ability to invest and grow, and could lead to direct economic constraints, particularly for small merchants”.
Assessing the competitive landscape, the PSR concluded that Mastercard and Visa do not face effective constraints around core scheme and processing services on the acquiring side, but do face constraints across optional services.
It also found that the two US payments giants come up against stronger competitive constraints on the issuing side – though this is more to do with the competition between the two firms rather than other providers, with the duo being each others’ biggest competitor.
“Cards are a popular and convenient way to make payments in the UK, so any issues in the card market can have a negative impact on both businesses, and ultimately consumers,” said David Geale, PSR Managing Director.
A last hurrah for the PSR?
The UK card market is ‘not working well’, the PSR believes, stating that this is detrimental to both merchants and customers. Card processing fees are a particular area of concern, alongside the provision of pricing information to merchants, which the PSR believes needs improvement.
“Overall, we have found evidence that acquirers’ abilities to access, assess and act on
relevant pricing information is below what we would expect in a well-functioning market,” its report read.
“On accessing information in particular, we have found that the information that acquirers
receive from Mastercard and Visa can be insufficient to understand the fees they are
charged.”
Building on its conclusions, the PSR plans to publish a consultation on its proposed approach and remedies to the situation ‘in the coming weeks’. This consultation will include the regulator’s views on effectiveness, a cost-benefit analysis and stakeholder views on proposals and assessments.
“We have found that there is a lack of competition in the market, and evidence that Mastercard and Visa might have been able to charge UK businesses millions of pounds more than they would in a properly competitive market, impacting on their ability to invest and grow,” PSR MD Geale added.
“The confusing information Mastercard and Visa make available to acquirers and merchants contributes to poorer market outcomes through raising their costs of dealing with this overly complex information.
“We will shortly consult on potential remedies to address the issues we have identified in our final report before we take any corrective action. We look forward to engaging with parties as part of this process.”
The PSR taking on Visa and Mastercard could be significant for UK businesses, potentially dealing a blow to the duo’s dominance in the market – a dominance that is replicated across various other major Western economies.
A response from the firms to any serious regulatory challenges could be expected, in the form of appeals or perhaps even legal action, though this is all speculation at this time as it is not clear what hard actions the PSR intends to take.
The regulator may win some support from the UK government due to its mention of British business growth, however. The government sees the UK finance sector as critical to the country’s economic growth, and will likely be keen to see the removal of any hindrance on British businesses.
On the other hand, recent developments suggest that the PSR could soon be no more.
According to Sky News, the government is evaluating whether to merge the regulator with the Financial Conduct Authority (FCA) to create a more all-encompassing watchdog over British finance, simplifying the regulatory process.
This would probably not signal the end of the investigations and consultations around Mastercard and Visa, however. The invitation would likely continue under a combined FCA/PSR entity, just under a different regulatory remit.
