The Payment System Regulator (PSR) today published their long-awaited consultation outlining their proposals to tackle the harms in the card scheme and processing fees market. Unfortunately, the proposals fall well short of what is needed to fix the problems that exist.
The consultation sets out remedies to require the card scheme operators to increase transparency on fees to merchants and acquirers, and requirements on pricing governance and regulatory reporting to the PSR.
While important, these proposed information-gathering and transparency remedies alone cannot drive effective reform.
The harms from the dominance of the card schemes are clear. The PSR’s market review into card scheme and processing fees has concluded that the card market is not working well, that card scheme revenues from scheme and processing fees have risen substantially in recent years, and that their margins are higher than would be expected in competitive markets, with UK merchants and their customers likely suffering harm as a result. Indeed, as shown in the PSR’s Final Report, between 2017 and 2023, Visa and Mastercard raised their core scheme and processing fees without justification or valuation by more than 25% in real terms, representing an extra cost of at least £170 million per year for UK businesses.
Despite these findings, the ‘must take’ status of cards in the UK market, and the proposal for a price cap to address similar harms in the cross-border interchange fees market, the PSR’s indecisiveness will continue to harm UK merchants. Pricing interventions must be introduced.
Chris Owen, Payments Policy Advisor at the British Retail Consortium, said:
“Today’s consultation represents a failure of vision by the PSR. Their proposed remedies fall well short of the robust measures needed to tackle the harms that have arisen from the dominance of the card scheme operators. Retailers have long been weighed down by the high cost of card payments, and the PSR has found enduring competition problems and inefficiencies that cause serious harm to the retail market. The PSR must act on its regulatory responsibilities and use its powers to mandate pricing interventions and a longer-term price cap to meaningfully lower fees and bring lasting reform to the market. Otherwise, the card schemes will continue to exploit their dominance, and retailers – and their customers - will continue to pay the price.”
