The UK’s Payment System Regulator (PSR) has chosen not to impose financial penalties on Visa and Mastercard regarding their scheme and processing fees, despite evidence indicating these companies maintain an effective duopoly in providing services to merchants.
The PSR’s market review into card scheme and processing fees found that there is currently “no effective competition preventing the two biggest schemes from raising prices,” indicating that service provision to merchants is “not working well.” Over the past five years, Mastercard and Visa have raised their scheme and processing fees by more than 30% in real terms, outpacing any improvements in service quality, according to the regulator.
UK businesses are largely left with no choice but to pay these increased fees, as Mastercard and Visa cards account for 95% of transactions made with UK-issued cards. Additionally, non-card payment methods often fail to present viable competitive alternatives for merchants.
During its market review, the PSR discovered that Mastercard and Visa provide complicated and unclear pricing statements to card acquirers, making it difficult for them to access fee information easily. Furthermore, acquirers face frequent delays and insufficient notice from Mastercard and Visa when fee changes are implemented, significantly limiting their ability to negotiate fees.
Instead of enforcing strict penalties on the card schemes, the PSR proposed several remedies aimed at enhancing transparency regarding costs. These measures will obligate Mastercard and Visa to provide clearer explanations for price changes, consult on the pricing of new services, and submit more detailed financial information to the PSR moving forward.
In response to the accusations of price-gouging, both Mastercard and Visa highlighted their significant ongoing investments in network resilience and fraud prevention.
As new payment options emerge for merchants, particularly through open banking, the PSR is actively promoting greater use of account-to-account payments to help businesses sidestep traditional card scheme networks.
Chris Hemsley, managing director of the PSR, stated: “Each time someone uses a Mastercard or Visa card, UK businesses incur fees. These fees have increased significantly in recent years, and such increases are not justified by improvements in service quality. We have also raised concerns about the transparency and quality of information available to those providing card services to businesses. Competition does not seem to be adequately protecting businesses.”
The PSR is currently inviting feedback on its interim report from stakeholders in the UK card payment sector, including businesses, issuers, acquirers, card scheme operators, and cardholders. The feedback window will remain open until July 30, 2024, with a full report scheduled for release in Q4 2024.
Additionally, a separate PSR investigation into interchange fees last year called for the reinstatement of a cap on interchange cross-border transaction charges that was removed after the UK’s exit from the EU.