UK’s PSR says market “isn’t working well for card scheme and processing services”

The UK’s Payment Systems Regulator (PSR) has said that the current market “isn’t working well for card scheme and processing services”, after the regulator published the final report of its card scheme and processing fees market review this week.

PSR publishes market review into card scheme and processing fees

In a statement released by the regulator on Thursday, the PSR says its report found that between 2017 and 2023, “Mastercard and Visa raised their core scheme and processing fees by more than 25% in real terms”, which it alleges is “costing businesses at least £170 million extra per year”.

“The PSR also found that the schemes do not provide sufficiently clear and detailed information to acquirers or merchants, resulting in them receiving complex or incomplete information on scheme and processing services and fees, raising both acquirers’ and merchants’ costs and preventing them from negotiating a better deal,” the PSR claims.

Building on the findings of an interim report published in May 2024, the PSR adds that its latest market review found that “Mastercard and Visa are subject to ineffective competitive constraints in the supply of scheme and processing services to acquirers and merchants in the UK”.

It claims that “fees have risen substantially in the recent years, with no clear evidence that new fees are set on the basis of detailed cost analysis, competition or innovation”.

The PSR says that while it has been unable to “reach a firm view on the level of the schemes’ profits”, it has “found evidence in Mastercard and Visa’s UK profits that is consistent with a finding that their margins are higher than would be expected in a well-functioning market”.

“Mastercard and Visa’s failure to provide sufficiently clear and detailed information on fees creates poor outcomes for acquirers and merchants, in particular by raising their costs and distorting their ability to respond to the schemes’ price signals,” the PSR’s statement continues.

“They then have little choice but to either pass these increased costs onto consumers or incur the costs themselves, impacting their ability to invest,” the regulator adds.

“A properly competitive market”

“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,” comments David Geale, managing director of the PSR.

“We have found that there is a lack of competition in the market, and evidence that Mastercard and Visa might have been able to charge UK businesses millions of pounds more than they would in a properly competitive market, impacting on their ability to invest and grow. The confusing information Mastercard and Visa make available to acquirers and merchants contributes to poorer market outcomes through raising their costs of dealing with this overly complex information,” Geale continues.

Geale states that the PSR will “shortly consult on potential remedies to address the issues we have identified in our final report before we take any corrective action”.

Mastercard and Visa respond

In a statement sent to FinTech Futures, a spokesperson from Mastercard says: “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. We will continue to work transparently with our customers and demonstrate to the PSR the significant value Mastercard and electronic payments bring to people and businesses across the UK.”

When contacted by FinTech Futures regarding the PSR’s new report, a Visa spokesperson said that the company’s fees “reflect the immense value that we provide to financial institutions, merchants and consumers”.

“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,” the Visa spokesperson continues.

“Through our investments, the UK has been a global pioneer in payments technology.”