Mastercard and Visa dominate the UK card payment market, lacking effective competition and leading to substantial fee hikes, according to a recent interim report by the Payment Systems Regulator (PSR).
The report reveals that over the past five years, scheme and processing fees have surged by more than 30 per cent in real terms, without corresponding improvements in service quality. Mastercard and Visa cards account for 95 per cent of transactions using UK-issued cards, while non-card payment methods are often not effective competitive alternatives for businesses.
Complicated and opaque pricing practices have further exacerbated the situation, leaving UK businesses with little choice but to absorb these increased costs. The PSR is now considering measures to boost transparency and competition in this critical sector.
The report also highlights the PSR’s efforts to promote account-to-account payments, including the use of open banking, to enhance competition and provide more payment choices in the retail sector.
PSR stance
Chris Hemsley, managing director of the PSR, said: “Every time someone uses a Mastercard or Visa card, UK businesses have to pay fees. These fees have significantly increased over recent years, and those increases cannot be explained by improvement in service quality.
“We have also identified concerns about the transparency and quality of information available to those providing card services to businesses. Competition does not appear to be protecting businesses effectively. This leads us to provisionally conclude that the market is not working well.
“We are consulting on these provisional findings. Should we conclude the market isn’t working well, we are considering remedies aimed at providing businesses and acquirers with more accurate and relevant information about the card services they use. The remedies would also increase transparency around Mastercard and Visa’s UK operations, allowing the PSR to better hold them to account.”
Mastercard reacts
“We disagree with the findings of the PSR’s interim review,” said a Mastercard spokesperson. “The payments industry has never been more competitive, which is reflected in the wide choice of payment options available to British consumers and businesses.
“Building and investing in the latest technologies, we power a first-class payments network which consumers, merchants and financial institutions can rely on. In its analysis, the PSR has failed to account for the significant investment required to provide a secure network which prevents billions of pounds of fraud each year.
“We consistently deliver on our core promise to people and businesses: providing ways to pay and be paid that are hassle and worry-free, secure and convenient. We will continue to work transparently with the PSR and demonstrate the significant value Mastercard and electronic payments bring to the UK economy.”
Visa responds
A Visa spokesperson also commented: “Visa’s investments in reliable, safe and innovative digital payments mean that everyone in the UK can buy and sell with confidence. This powers economic growth.
“Visa’s fees reflect the immense value that we provide to financial institutions, merchants and consumers including extremely high levels of security, near-perfect operational resilience, and a wide range of consumer protections and high-quality products and services that serve consumer and merchant needs.”
What’s next?
The PSR has outlined potential remedies to address these issues including improved transparency to ensure businesses and acquirers receive clear, accessible information to make informed decisions and consider switching to alternative suppliers for optional services.
It is considering obligations on Mastercard and Visa to require these companies to explain, consult on and document reasons for price changes and new service pricing, and mandaring greater financial reporting to the PSR to facilitate ongoing scrutiny of Mastercard and Visa’s operations in the UK.
The PSR is seeking feedback on its interim report from anyone with an interest in card payments in the UK – particularly businesses, issuers, acquirers, card scheme operators, as well as cardholders. The window for giving feedback is open until 30 July 2024. The PSR intends to publish its final report on scheme and processing fees in Q4 2024.