On 21 May 2024, the Payment Systems Regulator (PSR) published an interim report and consultation paper relating to its market review of card scheme and processing fees. The report sets out the PSR’s provisional findings on its market review of the scheme and processing fees associated with Mastercard and Visa, the two largest card payment system operators in the UK. The PSR is now seeking views on its provisional findings and proposed approach to remedies to help inform its final report.

The PSR launched its review following concerns that a substantial proportion of prior increases in these fees to acquirers could not be explained by changes in the volume, value or mix of transactions.

Findings

The PSR has provisionally found that Mastercard and Visa do not face effective competitive constraints when dealing with merchants and acquirers, in relation to core scheme and processing services. In particular, it notes that:

  • In respect of core scheme and processing services, and certain optional services where alternative providers do not exist, Mastercard and Visa face no direct constraint from alternative providers.
  • While new entrants are considered as potential competitors by Mastercard and Visa, they do not pose a credible threat today or in the medium-term.
  • In some optional services, alternative providers may provide varying degrees of constraint to Mastercard and Visa. However, as Mastercard and Visa can provide a one-stop shop solution for core and optional services, they are in a stronger position than alternative providers of optional services.

Its provisional findings in relation to pricing and non-pricing outcomes are consistent with its finding of a lack of competitive constraints.

Overall, the PSR provisionally concludes that the market is not working well, and that intervention may be needed. As such, in the interim report it outlines a wide range of potential high-level approaches it could take, as well as setting out certain approaches it is not intending to consider further.

Potential remedies

Subject to the PSR’s final report and further consultation on remedies, potential remedies could include:

  • Improved transparency so that businesses and acquirers can make informed decisions and are more able to switch to alternative suppliers of optional services.
  • Obligations on Mastercard and Visa to explain, consult and/or document the reasons for price changes and the pricing of new services
  • Greater reporting of financial information to the PSR on an on-going basis to improve scrutiny of Mastercard and Visa’s UK operations going forward.

The PSR also outlines that its provisional findings highlight the importance of the PSR’s work to unlock account-to-account payments (Open Banking in particular), to facilitate greater choice for merchants for retail payments in the longer term.

Consultation and next steps

The PSR is seeking feedback on these provisional conclusions and potential remedies, and the deadline for giving feedback is 30 July 2024. It plans to publish its final report on scheme and processing fees in Q4 2024 but will confirm timeframes in due course. If the final report upholds the provisional finding that the market is not working well, the PSR intends to consult on the implementation of any remedies.