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Mastercard and Visa do not face effective competition when dealing with merchants and acquirers, the UK Payment Systems Regulator (PSR) has provisionally found, possibly heralding new regulation in the space.
In an interim report published on May 21, the PSR found that the two big card networks dominate the supply of core scheme and card payment processing services to acquirers.
The regulator is seeking views from interested parties, who have until July 30 to make submissions, which will inform the final report.
In terms of core scheme and processing services, the PSR said that there is currently no effective competition to Mastercard and Visa. In some optional services, competition and choice are limited, it says: alternative providers are unable to match the big two’s comprehensive service packages.
“Every time someone uses a Mastercard or Visa card, UK businesses have to pay fees,” said Chris Hemsley, managing director of the PSR. “These fees have significantly increased over recent years, and those increases cannot be explained by improvement in service quality.”
The regulator has also identified concerns about the transparency and quality of information available to those providing card services to businesses, Hemsley said. “Competition does not appear to be protecting businesses effectively. This leads us to provisionally conclude that the market is not working well.”
If this conclusion is upheld in the final report, the PSR will consider remedies aimed at providing businesses and acquirers with more accurate and relevant information about the card services they use, he said. “The remedies would also increase transparency around Mastercard and Visa’s UK operations, allowing the PSR to better hold them to account.”
A spokesperson for Mastercard criticised the PSR’s findings. “We disagree with the findings of the PSR’s interim review,” they said. “The payments industry has never been more competitive, which is reflected in the wide choice of payment options available to British consumers and businesses.”
The spokesperson continued that through building and investing in the latest technologies, Mastercard powers a first-class payments network which consumers, merchants and financial institutions can rely on. “In its analysis, the PSR has failed to account for the significant investment required to provide a secure network which prevents billions of pounds of fraud each year.”
Mastercard “consistently” delivers on its core promise to people and businesses: providing ways to pay and be paid that are hassle and worry-free, secure and convenient, the spokesperson said. “We will continue to work transparently with the PSR and demonstrate the significant value Mastercard and electronic payments bring to the UK economy.”
A spokesperson for Visa said that “Visa’s investments in reliable, safe and innovative digital payments mean that everyone in the UK can buy and sell with confidence. This powers economic growth.
“Visa’s fees reflect the immense value that we provide to financial institutions, merchants and consumers including extremely high levels of security, near-perfect operational resilience, and a wide range of consumer protections and high-quality products and services that serve consumer and merchant needs,” the spokesperson said.
Meanwhile, Chris Owen, payments policy advisor at the British Retail Consortium, welcomed the findings.
“This report highlights the lack of competition across card schemes, with fees being introduced without justification or sufficient explanation,” he said.
“It’s now time for action. The PSR must implement meaningful reforms to increase competition, increase transparency, and reduce costs in the payment market,” Owen demanded.
Report findings
The report highlights that over the past five years, after adjusting for volume changes, Mastercard and Visa have increased their scheme and processing fees by more than 30 percent in real terms.
According to the PSR, there is little evidence to suggest that the quality of service has improved proportionately. UK businesses have limited options but to pay these increased fees, as Mastercard and Visa cards account for 95 percent of transactions using UK-issued cards.
Non-card payment methods, meanwhile, often do not provide effective competitive alternatives for businesses.
During the market review, the PSR also found evidence that Mastercard and Visa provide complicated and unclear pricing statements to card acquirers (which enable merchants to accept card payments).
Acquirers, meanwhile, face difficulties accessing information about fees and experience frequent delays and insufficient notice periods from Mastercard and Visa regarding fee changes. Furthermore, acquirers have minimal ability to negotiate fees.
In response to these initial findings, the PSR has proposed potential remedies to ensure better transparency around costs and to provide clearer information about the services provided by Mastercard and Visa.
The proposed remedies include improved transparency to help businesses and acquirers make informed decisions and facilitate switching to alternative suppliers of optional services.
Additionally, the PSR suggests obligations on Mastercard and Visa to explain, consult on and document the reasons for price changes and the pricing of new services.
The regulator has also proposed enhanced reporting of financial information to the PSR on an ongoing basis is also recommended to improve scrutiny of Mastercard and Visa’s UK operations.
Interested parties can get involved in the consultation by emailing their responses to the findings and potential remedies before the end of July deadline.
