Payments regulator proposes new measures promoting competition in UK payments market

Following its announcement in July 2018 of its review of card-acquiring services, the Payment Services Regulator (PSR) has recently published its interim report, including proposed new measures which, if enacted, could bring significant benefits to retailers who take payments by card and/or mobile devices.  

The UK payments sector handled transactions totalling £83 trillion in 2019 and continues to expand, with cards and mobile payments playing an increasingly central role even before the onset of Covid-19 as an accelerating factor. Accordingly providers of card acquiring services, which retailers use to process payments, are continuing to fall under the regulatory spotlight.
The PSR’s current review is targeted towards the level of competition among acquirers and the resulting impact on retailers and other merchants. Amid concerns merchants may not be getting value for money from card-acquiring providers, the PSR is examining measures to drive competition and offer merchants (and ultimately the consumers who buy from them) a better deal in the market.

The PSR’s findings

In its interim report, the PSR identified two types of providers of card acquiring services: 

• Acquirers, the five largest of which are Barclaycard, Elavon, Global Payments, Lloyds Bank Cardnet and Worldpay; and
• Payment facilitators, the largest of which are PayPal, Square and SumUp.

The PSR report has provisionally concluded that, while the market works well for the largest merchants, i.e. those with an annual card turnover in excess of £50m, it works less well for small and medium sized merchants. Despite new card acquiring service providers entering the market, the PSR has found that those smaller merchants still face barriers stopping them from shopping around and obtaining better deals from acquirers and/or payment facilitators. 

The proposed new measures

In order to tackle those barriers, the PSR has proposed the following measures in order to help smaller and medium sized merchants obtain the benefit of more competitive pricing for the services they receive:

• Requirement for a fixed end date in contracts for card acquiring services where card turnover is no more than £50 million, in order to encourage merchants (except those largest ones for whom the market is working well) to shop around for services more frequently.
  
  
• Measures to prevent contracts for the supply of point of sale (POS) terminals acting as a barrier to switching providers, which may include term length limits, restrictions on auto-renewal provisions, and linking separate contracts where POS terminals and card acquiring services are provided by the same acquirer.
  
  
• Measures making it easier for merchants to research and compare pricing, such as a requirement for acquirers (including ISOs who sell services on their behalf) and payment facilitators to publish their pricing in a clear and comparable format.
  
  

The potential impact

The proposed requirements could represent a welcome boost to retailers by helping to reduce the time and complexity involved in assessing different providers. The price reductions which may be driven to by a more open market would in turn bring down overheads, as well as compel acquirers and payment facilitators to examine their current offerings and find new ways to add value. As consumer habits continue to shift towards the cashless and digital spheres, and retailers reflect this in their long term strategies, the volume of payments taken by card and/or mobile will continue to grow. In this context, savvy retailers who do shop around for their card acquiring services may be able to achieve significant cost savings.

The PSR’s report also highlights the key role that payment facilitators are playing in onboarding and assisting new merchants with annual card turnover under £380,000, which underlines both the diversity of the retail sector and the payments industry which supports it; this also evidences fertile ground for the type of competition which the PSR hopes its changes will drive.

While the PSR’s final report is not due until 2021, its interim findings represent good news for operators of all sizes in an increasingly challenging retail sector.

Should you wish to discuss the proposed changes in more detail, or the ways in which TLT’s Payments and Retail specialists can help your business, please contact Tim Waller or Perran Jervis.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.