Could the UK PSR’s review of card fees boost B2B credit card payments?
According to new analysis from UK Finance, there were 357.4 million credit card transactions in May of 2022, a 26.9% increase from May of 2021.
The total spend of £19.9 billion was 33.1% higher than May 2021. As a result, businesses of all sizes and across all industries have had to ready themselves to start accepting credit cards as payment methods.
With the explosion in card usage, it’s unsurprising that the UK’s payment regulatory agency, the Payment Systems Regulator (PSR), has started to zero in on different fees charged by the card networks. Established under the Financial Services Banking Reform Act of 2013, the PSR will review certain fees charged by Mastercard and Visa – the two largest card networks in the country – to determine whether card payments are working well and to make sure that merchants, and ultimately consumers, get a good deal. Combined, they move 99% of card payments through their payment rails.
This push to bring more clarity to fee structures comes at a time when credit card usage for B2B payments has experienced an uptick. More firms are looking to enable B2B credit card payments because of increased interest from payers.
At least one contributing factor is the changing buying landscape for B2B purchases – with digital avenues taking over a large part of the decision-making and even purchasing process. One in five B2B decision-makers are now willing to spend between $500,000 and $5 million on a single interaction on remote or self-service channels. That’s according to McKinsey’s most recent B2B Pulse Survey, which polled 3,500 B2B decision-makers surveyed across 12 countries including the United Kingdom. Credit cards are also stacked in the accounts payables department’s favour because they provide easy access to electronic statements and access to rebates.
Here’s the kicker – organisations aren’t always ready to accept credit cards (or eager). But more fee clarity could bring a boost to B2B credit card payments. Almost two-thirds of respondents to a recent Association for Financial Professionals survey indicated that their organisations would replace paper cheques (still the favoured B2B payment method) with electronic payments if there was a cost benefit of doing so.
When it comes to electronic payment methods, businesses are foggier on the cost of their credit card payments than any other payment type. A lot of that cost is muddied by the payment gateway providers themselves – who bundle fees and pass it on to the merchant as a flat one. When everything isn’t broken out it’s hard to understand what you’re being charged for, and hard to find ways to decrease that cost.
The PSR has set out two market reviews, one looking at scheme and processing fees and the other on cross-border interchange fees – the latter of which has increased by a factor of five since the UK left the European Union. What exactly the outcome of the review will be isn’t yet known, with the consultation paper outlining the PSR’s plan listing a range of possible outcomes including government-issued guidance and releasing requirements that change operating rules. The UK has already made headlines for being a bit of a testing ground for challenging card fees, when late last year Amazon threatened to stop accepting Visa-issued cards on its platform before the two firms reached a truce earlier this year.
The good news is that there are actions that organisations can take now to bring more clarity around credit card fees. These include:
- Pay attention to the fees not only you pay to the acquirer or processor, but the fees your clients will pay. This helps you answer client questions when they arise.
- Understand the total cost of payment so that you have the information to pick a payment provider with the most competitive processing rates.
- By securing the best rates and a high level of visibility into payments for your clients, you deliver a better payment experience, a key consideration in choice.
- When comparing the cost of acceptance of credit cards to other payment types, consider the value proposition of a credit card to your payers and the impact on their purchasing behaviour. Credit cards may be preferred because of their benefits, which can include interest-free credit, reward points and ease of making cross-border payments.