Mastercard and Visa, the two dominant card schemes, are facing scrutiny from the Payment Systems Regulator (PSR) after the release of its interim report on card scheme and processing fees. The PSR’s Market Review highlights concerns over the lack of effective competition in the card payment industry, particularly regarding the core and optional services provided by these giants.
What is the Payment Systems Regulator?
The Payment Systems Regulator (PSR) is the economic regulator for the payment systems industry in the UK. Established in 2015, the PSR’s primary aim is to promote competition and innovation in payment systems while ensuring they operate in the interests of end-users. The PSR oversees the operations of payment systems, ensuring they are transparent, competitive, and fair. By addressing issues such as pricing, service quality, and market access, the PSR plays a crucial role in maintaining the integrity and efficiency of the UK’s payment infrastructure.
Key Findings from the PSR Interim Report
The PSR’s interim report brings to light several critical issues regarding Mastercard and Visa’s operations:
- Lack of Competition: Mastercard and Visa dominate the market for core scheme and processing services, with no effective competition in sight. This monopolistic hold extends to some optional services, where competition is either limited or non-existent. Alternative providers struggle to offer a comparable one-stop-shop solution.
- Fee Increases: Over the past five years, Mastercard and Visa have increased their scheme and processing fees by over 30% in real terms, outpacing any improvements in service quality. UK businesses are left with little choice but to accept these higher fees, as Mastercard and Visa cards account for 95% of transactions using UK-issued cards. Non-card payment methods fail to offer viable competitive alternatives.
- Transparency Issues: The PSR found that Mastercard and Visa provide complicated and unclear pricing statements to acquirers, who enable merchants to accept card payments. Acquirers face significant challenges in accessing fee information easily and encounter frequent delays and insufficient notice periods regarding fee changes. Moreover, acquirers have minimal negotiating power over these fees.
Potential Remedies Proposed by the PSR
To address these issues, the PSR has outlined several potential remedies aimed at improving the market conditions:
- Improved Transparency: Ensuring that businesses and acquirers receive clear and detailed information about the costs and services provided by Mastercard and Visa. This would enable more informed decision-making and facilitate switching to alternative service providers where possible.
- Fee Explanation Obligations: Imposing requirements on Mastercard and Visa to explain, consult on, and document the reasons behind price changes and the introduction of new services.
- Enhanced Reporting: Mandating greater reporting of financial information to the PSR on an ongoing basis. This would enhance the PSR’s ability to scrutinize Mastercard and Visa’s UK operations effectively.
Statements from PSR Leadership
Chris Hemsley, Managing Director of the PSR, emphasized the impact of these findings on UK businesses: “Every time someone uses a Mastercard or Visa card, UK businesses have to pay fees. These fees have significantly increased over recent years. 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.”
Hemsley continued, “We are consulting on these provisional findings. 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.”
Next Steps
The PSR is seeking feedback on its interim report from stakeholders involved in the UK card payments industry, including businesses, issuers, acquirers, card scheme operators, and cardholders. The consultation period for feedback is open until July 30, 2024.
As this review progresses, the final report and subsequent actions taken by the PSR could significantly impact the operations of Mastercard and Visa in the UK, potentially leading to a more competitive and transparent card payment market.
This article was originally created and published by Electronic Payments International, a GlobalData owned brand.