The Payment Systems Regulator (PSR) has released its final report on the market review into card scheme and processing fees, revealing significant inefficiencies and a lack of competition in the UK’s card payment industry.
The report highlights concerns over fee increases imposed by Mastercard and Visa, which have led to additional costs for businesses and hindered competition.
The PSR’s investigation found that Mastercard and Visa have raised their core scheme and processing fees by over 25% since 2017, adding at least £170 million in annual costs for businesses. These fee increases have not been justified by detailed cost analyses, competitive pressures, or clear innovation. Instead, the PSR suggests that Mastercard and Visa’s dominant market positions have allowed them to set prices without significant constraints.
Furthermore, the report indicates that both card schemes fail to provide acquirers and merchants with sufficiently clear and detailed information regarding fees. This lack of transparency makes it difficult for businesses to assess costs effectively and negotiate better terms, leading to higher operational expenses and potential price increases for consumers.
Card payments are essential to the UK economy, enabling seamless transactions for consumers and businesses alike. However, the PSR’s findings suggest that the current market structure may be impeding economic growth and innovation. The increased costs associated with Mastercard and Visa’s pricing strategies reduce businesses’ ability to invest and expand, while unclear pricing structures add complexity to financial planning for retailers, particularly smaller merchants.
David Geale, Managing Director of the PSR, emphasized the detrimental effects of these market conditions:
“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 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.”
In response to these findings, the PSR has announced plans to consult on potential regulatory remedies aimed at addressing the identified market inefficiencies. These remedies may include measures to enhance transparency, introduce fee caps, or implement structural reforms to encourage competition within the card payment sector.
The UK payments regulator has previously taken steps to increase scrutiny on Visa and Mastercard, following ongoing complaints from merchants and retailers, Financial Times reported. The upcoming consultation period will provide an opportunity for stakeholders to present their views before the PSR takes formal corrective action.
Visa and Mastercard maintain that their scheme and processing fees reflect the value of their services, including investments in cybersecurity and network resilience. However, the PSR’s findings indicate that these justifications do not fully explain the substantial fee increases seen over recent years. Given that Visa and Mastercard collectively process 95% of all debit and credit card transactions in the UK, the regulator’s proposed remedies could have significant implications for the payments industry.
