The Payment Systems Regulator (PSR) have published their final report into the card-acquiring market review. As part of its Review, the PSR said it would examine how scheme fees have changed with the regulator’s analysis showing that “scheme fees more than doubled over the period from 2014 to 2018, with most of this increase occurring between 2016 and 2018, after the IFR caps came into force” (PSR, 2020). BRC Payment Surveys show that card scheme fees rose 39% in 2017 and 56% in 2018, and CMSPI estimates the cumulative cost to UK merchants of scheme fees increases since the IFR (Dec. 2015) to be £2.5 billion. The PSR also confirm in their press release that they are aware of recent card fee hikes by for cross-border transactions as regulatory constraints have been removed since Brexit.

Pathological Demand Avoidance (PDA)

In response, the PSR have proposed no action whatsoever to curb these soaring anti-competitive card fees levied on Britain’s businesses and consumers. Instead, “to address these behaviours, the PSR set out in its strategy its plans to unlock the potential of account-to-account payments to offer a viable alternative to card payments.” Today, these payments account for approximately 12 million transactions per year – a drop in the ocean to 17 billion annual retail transactions. In 2020, 81% of retail spending in the UK was via credit or debit card – higher than ever before, with the vast majority of the remainder paid in cash (BRC Payments Survey 2021).

  • Last year, the UK Supreme Court ruled that Visa and Mastercard interchange fees are unlawful, creating a considerable anomaly that the PSR continue to allow such fees.
  • This year, nearly 40 cross-party MPs wrote to the PSR calling for robust regulatory measures on card fees.
  • In 2020 and again in September 2021, the British Retail Consortium (BRC), British Independent Retailers Association (BIRA), Association of Convenience Stores (ACS), Federation of Small Businesses (FSB), and UKHospitality have jointly called for immediate action to tackle soaring card fees which add to the price of goods and services.
  • This time the BRC, BIRA, ACS, FSB and UKHospitality have called on Parliament (via the Treasury Committee) to urgently intervene.

Next Steps for the Card-Acquiring Market Review

The final report identifies three features that restrict merchants’ willingness and ability to search and switch:

  • Acquirers and independent sales organisations (ISOs) don’t typically publish their prices and their pricing structures and approaches to headline rates vary significantly. This makes it difficult for a merchant to compare prices for ISOs, acquirers and payment facilitators.
  • The indefinite duration of acquirer and payment facilitator contracts for card-acquiring services do not provide a clear trigger for merchants to think about searching for another provider and switching.
  • POS terminals and POS terminal contracts can prevent or discourage merchants from searching and switching provider of card-acquiring services. This can occur as a merchant may need a new POS terminal if it switches provider of card-acquiring services but it could incur a significant early termination fee cancelling its existing POS terminal contract.

The PSR will publish a remedies consultation in early 2022. Following this, the PSR will publish a provisional decision on remedies (and potentially a draft remedies notice) for consultation later that year.