The Payment System Regulator (PSR) has revealed that increases to payment processing fees implemented by Visa and Mastercard since 2017 cost UK businesses an extra £170million a year.
In a new report, which sets out the findings of the PSR market review of the scheme and processing fees
associated with Mastercard and Visa, the regulator says that the payment giants increased their core schemes and processing fees to acquirers by at least 25 per cent since 2017.
It says that these increases, which roughly equate to an added £170million cost per year for UK businesses, drastically impact their ability to invest and grow. This could lead to direct economic constraints, particularly for small merchants, as a lack of easy-to-understand fee information led to costs for acquirers and merchants, including small retailers.
These findings are significant because card transactions remain the most popular way for consumers to pay for goods and services in the UK. In 2023, card transactions represented 61 per cent of all payments in the UK, making up almost 86 per cent of the total value of retail transactions.
David Geale, managing director at the PSR, explained: “Cards are a popular and convenient way to make payments in the UK, so any issues in the card market can have a negative impact on both businesses, and ultimately consumers.
“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. The confusing information Mastercard and Visa make available to acquirers and merchants contributes to poorer market outcomes through raising their costs of dealing with this overly complex information.”
Ensuring a ‘fair and balanced’ approach
Ultimately, the PSR says that it does not view the current level of fees charged by Visa and Mastercard as ‘a necessary condition’ to support the level of investment and innovation in the card industry. It believes that increased competition in the industry would lead to more innovation, which would greatly benefit card users.
Willem Wellinghoff, chief compliance officer at Ecommpay, a UK-based payment solution provider, explains the importance of ensuring fees are fair for merchants and acquirers: “Credit and payment cards are fundamental to the UK economy; it is vital, therefore, that the schemes underpinning cards deliver fair services for merchant acquirers and merchants. The PSR’s review has identified areas for improvement, with a consultation to be announced shortly on potential remedies to address the issues.
“Whilst it is too early to speculate, the consultation will hopefully lead to a more fair and balanced approach to merchant acquirers, and ultimately merchants, which can only be good for the UK economy as a whole. Ecommpay will welcome the opportunity to contribute to the consultation to provide our perspective from a PSP point of view.”
The PSR said it plans to publish a consultation paper that seeks views on potential solutions to these issues.
The ‘hidden horror’ in fintech
In its report, the PSR revealed that its findings are consistent with the fact that Visa and Mastercard’s margins are ‘higher than would be expected in competitive markets’.
Richard Carter, founder of UK payment app Lopay, also slammed the payment giants for taking advantage of the lack of competition in the card industry. He said: “For years, the big two have been controlling payments in the UK and making a hefty sum in the process.”
Carter, who set up his challenger brand in 2022, says that “it’s time for a reset in the fintech industry following the Payment System Regulator’s report. The lack of a better alternative was exactly the reason why I founded Lopay in the first place, to give the working man and those behind SME’s a fair chance at success.
“Transaction fees are the hidden horror in fintech. However, at Lopay, we shine a light on this area and make our users well aware of how best to get as close to 0 per cent as possible. Many companies in fintech begin their card transaction rates at between two and four per cent – which is where the millions of pounds begin to stack up.”
