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Following a multi-year review into Mastercard and Visa’s fees, the Payment Systems Regulator (PSR) has concluded that the card schemes and processing services are not functioning effectively.
The PSR found that both card schemes have increased their core scheme and processing fees by at least 25 percent in real terms since 2017, costing businesses an estimated £170m more per year.
In its newly published final report, the regulator also criticised a lack of transparent fee structures, which it said has made it harder for acquirers and merchants, particularly small retailers, to understand and manage their costs.
Cards remain a dominant payment method in the UK, making it essential that businesses and consumers benefit from a competitive and well-functioning market, the PSR said.
However, its review concluded that Mastercard and Visa face insufficient competitive pressure, allowing them to increase fees without clear cost justifications.
“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, the PSR’s managing director.
Card schemes on the defensive
Both card schemes have defended their purpose and the fees that they charge to merchants.
A spokesperson for Mastercard told Vixio that “we disagree with the findings in today’s report, which continues to underplay the true competitiveness of the payment industry and our ongoing innovation and investment into security and the consumer experience”.
“Our resilient, global network provides peace of mind and strong consumer protections, preventing billions of pounds of fraud each year,” the spokesperson said.
They added that the company will continue to work transparently with customers, demonstrating to the PSR the “significant value Mastercard and electronic payments bring to people and businesses across the UK”.
Visa, meanwhile, told Vixio that its “fees reflect the immense value that we provide to financial institutions, merchants and consumers”.
According to the spokesperson, “this includes extremely high levels of security and fraud prevention, near-perfect operational resilience and reliability, and a wide range of consumer protections and high-quality products and services that serve consumer and merchant needs.”
“Through our investments, the UK has been a global pioneer in payments technology,” the company said.
Report findings
The report highlights that Mastercard and Visa hold a dominant market position, with little competition in scheme and processing services.
It adds that this lack of competitive pressure has allowed both companies to increase their fees significantly in recent years.
As a result, merchants face higher expenses and limited negotiating power, ultimately restricting their ability to secure better deals.
This lack of clarity and competition contributes to rising costs across the payments industry, which may be passed on to consumers.
The report acknowledges that merchants in the UK accept a range of payment methods beyond Mastercard and Visa, including: American Express; digital wallets; buy now, pay later (BNPL) solutions; and open banking payments.
However, the PSR has concluded that these methods have limited ability or incentive to steer customers away from Mastercard or Visa, even in response to rising fees.
For example, American Express is widely used in sectors such as travel and hospitality, but its higher fees and different business model mean merchants do not actively encourage customers to switch from Mastercard or Visa.
Digital wallets such as Apple Pay and Google Pay do not charge merchants, but rely on underlying card transactions, making them ineffective alternatives.
PayPal and BNPL providers charge merchants directly, but their higher fees discourage active customer steering.
The PSR has suggested that open banking and real-time payments offer potential competition, with lower costs for some transactions.
However, their adoption remains limited due to technical and operational barriers, meaning they are unlikely to challenge Mastercard and Visa in the short-to-medium term.
“We will shortly consult on potential remedies to address the issues we have identified in our final report before we take any corrective action,” said Geale. “We look forward to engaging with parties as part of this process.”
