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REG - Payment Systems Reg - PSR: Interim market review report

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RNS Number : 2508P  Payment Systems Regulator  21 May 2024

PSR provisionally finds that the cards schemes do not face effective
competition in the supply of scheme and processing services to acquirers

·    The regulator's interim report suggests the supply of scheme and
processing services is not working well

·    There is currently no effective competition preventing the two
biggest schemes raising prices

·    Pricing in the market is complicated and prices have risen
substantially over the last five years


Today, the Payment Systems Regulator (PSR) has published its interim report
(https://www.psr.org.uk/mr22-1-9/) for its market review into scheme and
processing fees. It is now seeking views on its provisional findings to help
inform its final report.


Cards play an essential role in retail payments for both consumers and
businesses, so it is important these markets work well.


In its interim report, the PSR has found that Mastercard and Visa - the two
biggest card schemes - do not face effective competition when dealing with
merchants and acquirers in the following areas:


·    In respect of core scheme and processing services, there is currently
no effective competition to Mastercard and Visa.

·    In some optional services, competition and choice is limited and
alternative providers, when present, cannot match the schemes' one-stop shop
solution for core and optional services.


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.


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


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 (who enable merchants to take card payments).

·    That 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.

·    There was very little ability for acquirers to negotiate any fees.


In view of the initial findings, the PSR sets out potential remedies to make
sure more is done by Mastercard and Visa to improve transparency around these
costs and ensure acquirers and business are given clearer information about
the services provided.

The remedies the regulator is considering include:

·    improved transparency so that businesses and acquirers can make
informed decisions and are more able to switch to alternative suppliers of
optional services

·    obligations on Mastercard and Visa to explain, consult on and/or
document the reasons for price changes and the pricing of new services

·    greater reporting of financial information to the PSR on an on-going
basis to improve scrutiny of Mastercard and Visa's UK operations going


This work also highlights the importance of the PSR's ongoing work to unlock
greater use of account-to-account payments - including using Open Banking - as
a way to facilitate greater choice in retail payments.

Chris Hemsley, Managing Director of the 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.

"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

What happens next?

The PSR is seeking feedback on its interim report
(https://www.psr.org.uk/mr22-1-9/) 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.

The PSR will carefully consider all feedback and intends to publish its final
report on scheme and processing fees in Q4 2024. It will confirm these
timeframes in due course.

If the final report upholds the provisional finding that the market is not
working well, the PSR will consult on the implementation of any remedies.


Notes to editors:

·    Scheme fees are charged by Mastercard and Visa to participate in
their card payment systems. Processing fees are charged by Mastercard and Visa
for authorisation, clearing and settlement services for card payments.

·    The scheme and processing fees market review was launched following
evidence which emerged from the Card Acquiring Market Review
, indicating that prices during the period 2014 to 2018 had increased by 80%
and 115%. Since then, Mastercard and Visa have continued to increase theses
prices by more than 30% in real terms over recent years (between 2017 - 2021
for Mastercard and 2018 - 2022 for Visa).

·    A full history of the PSR's market review into scheme and processing
fees can be found here

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