Market review into card scheme and processing fees – PSR’s interim report and provisional findings

On 21 May 2024, the Payment Systems Regulator’s (PSR) published its interim report setting out the regulator’s provisional findings of its market review on card scheme and processing fees. The PSR had previously launched its review of the scheme and processing fees due to concerns that Visa and Mastercard, the two largest card payment system operators in the UK, might not face effective competitive constraints by other market participants.

We have set out the key findings to the PSR’s interim report:

The PSR’s provisional findings:

• Lack of Effective Competition in the relevant market: According to the PSR’s provisional findings, the two largest card schemes in the UK do not appear to face effective competitive constraints:
  
  
  • In respect of core scheme and processing services, alternative providers do not appear to be able to exert competitive pressure to the main incumbents.
  • New entrants do not exert immediate market pressure and competition to the incumbent card schemes, not least due to due to their inability to provide a one-stop solution. 

     

• Rising Fees:
  
  
  • The scheme and processing fees imposed by the card schemes appear to have increased significantly since 2017, without being followed by equally significant service quality improvements.
  • The PSR estimates that these fee increases represent an extra £250 million annual cost for UK businesses.

   

• Transparency Issues: The PSR also expressed certain concerns around the transparency of the pricing statements provided by the card schemes:
  
  
  • Certain acquirers expressed the view that they cannot always access information about fees in an easy way, and they were not always provided with insufficient notice periods prior to the introduction of fee changes by the card schemes.
  • Acquirers do not appear to possess significant negotiating power in the relevant discussions about the setting of the card scheme and processing fees.

  Against the above backdrop, the PSR has provisionally concluded that the relevant market is not working well, and that intervention may be needed. The PSR also set out some potential remedies to address the existing market deficiencies:

• Improved transparency to ensure that businesses and acquirers can make informed decisions and are able to switch to alternative suppliers of optional services.
• Measures that would require the card schemes to set out the reasons behind any future price increase.
• Periodic financial reporting to the PSR by the card schemes to improve data gathering and accuracy.

What happens next?

In terms of next steps, the PSR is now seeking views on its provisional findings 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 and the PSR intends to publish its final report on card scheme and processing fees in Q4 2024.