PSR provisionally finds that Visa and Mastercard face a lack of effective competition

What’s this about?

The Payment Systems Regulator (PSR) has invited comments on its provisional findings relating to its market review of the scheme and processing fees associated with Mastercard and Visa in the UK. It has provisionally found that Mastercard and Visa do not face effective competitive constraints citing a 30% increase in fees charged to issuers and acquirers in the last five years, with ‘little evidence’ the service has improved at the same rate.

Following receipt of feedback on its provisional findings, the PSR intends to publish its final report in Q4 2024.

Key points not to miss...

• The report noted that Mastercard and Visa are used extensively in the UK and so acquirers have little choice but to offer acquiring services for both to avoid losing custom from merchants.
• As there are significant barriers preventing the entry of third-party processers into the UK market, core processing services can only be sourced from Mastercard and Visa. Core scheme services are a condition of participation in a card system and so cannot be offered by alternative providers.
• Merchants have limited ability and incentives to direct customers towards alternative payment methods. Digital wallets incorporate the use of cards and ‘Buy Now Pay Later’ providers charge a fee irrespective of the underlying payment method used, so these alternatives pose a limited threat in the short to medium term. Open Banking and account-to-account retail payments are not yet seen as effective alternatives to cards.
• Scheme and processing fees are usually passed through by acquirers to merchants, so acquirers are not incentivised to resist fee increases. Additionally, Mastercard and Visa provide an attractive “one stop shop” for core and optional services and there are very few alternative providers for optional services available.
• Acquirers have raised concerns that information is often incomplete or inaccessible. Some acquirers are resorting to hiring additional or consultancy services to understand their fees and to identify the merchants incurring the fees so that they can passed through to them.
• From an issuer perspective, only Mastercard and Visa are invited to participate in tenders for business and they offer increasingly larger incentives to issuers, which can be further negotiated by issuers with strong bargaining power. Higher incentives are usually required to motivate issuers to switch between schemes because of the cost and risk involved in doing so.
• The PSR is considering several remedies to improve transparency, enable businesses and acquirers to make better-informed decisions and support the use of alternative payment providers. Mastercard and Visa could be required to:
  • properly explain, justify and document price change decisions (for both fee increases and new services);
  • report their financial information to the PSR to enable greater operational scrutiny; and
  • provide more accurate and accessible information to assist businesses, particularly SMEs, to improve understanding of the scheme and processing fees.
• As an interim remedy, Mastercard and Visa may be required to consult acquirers and merchants on new or increased fees. They may also be required to keep internal records of price changes and be able to demonstrate that fee increases are a result of increased costs.

Key info at a glance

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Contributors: Alex Williamson and Simran Dhadwar

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.