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The UK payments regulator has warned Visa and Mastercard it will take action to tackle a lack of competition and transparency in the card payments market that it said was costing British businesses millions of pounds a year.
Visa and Mastercard, which account for 95 per cent of all debit and credit card payments in the UK, have increased the fees they charge merchants by 25 per cent above inflation since 2017, costing UK businesses at least £170mn extra a year, the Payment Systems Regulator said on Thursday.
The regulator’s plan to impose “remedies” on the card providers is the latest attempt to loosen the grip of Visa and Mastercard on the payments sector, following complaints about the fees from merchants and retailers, and calls for more competition.
“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,” said David Geale, managing director of PSR.
The regulator did not specify the potential remedies, but its powers include imposing caps on fees. It has previously considered forcing the card networks to disclose their pricing methodologies in an effort to foster transparency.
The PSR said its review of the card payments market found Visa and Mastercard “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”.
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Geale said it would “shortly consult on potential remedies to address the issues we have identified in our final report before we take any corrective action”.
Visa and Mastercard charge fees to sellers for access to their network and various processing fees for the authorisation, clearing and settlement of payments.
Unlike interchange fees, which are passed on to banks, scheme and processing fees go directly to card networks. These fees have in the past attracted less scrutiny than interchange fees because they account for a smaller portion of the charges incurred by sellers.
Businesses welcomed the regulator’s promise to clamp down on the cost of card payments, with some trade groups calling for it to go beyond its initial proposals by capping fees.
“It’s now time for meaningful action,” said Chris Owen, payments policy adviser at the British Retail Consortium, calling for the PSR to introduce “interim pricing remedies to reduce fees which have been an unjust burden on merchants, and working towards the introduction of a price cap in the longer term”.
Tina McKenzie, policy chair at the Federation of Small Businesses, said: “To boost economic growth, small businesses will now look to the regulator to impose remedies such as caps on fees.”
Visa and Mastercard have previously said their scheme and processing fees are a reflection of the value of their services, which have in recent years been strengthened by investment in cyber security and network resilience.
Mastercard said it disagreed with the regulator’s findings and that the watchdog “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,” it added.
Visa said its fees “reflect the immense value that we provide to financial institutions, merchants and consumers”.
It said its charges covered “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”.
Additional reporting by Akila Quinio in London
An earlier version of this article incorrectly attributed a statement from Mastercard to Visa
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