Regulator probes lack of competition to Visa, Mastercard

The Payment Systems Regulator (PSR) said in an interim report on Tuesday that Mastercard and Visa, the UK’s two dominant payment card schemes, did not face effective competition in the supply of scheme and processing services to acquirers.

It suggested that the market for scheme and processing services was not functioning well, with Mastercard and Visa increasing fees substantially over the last five years without improvements in service quality.

The fees had risen by more than 30% in real terms, with UK businesses having little choice but to pay the higher costs due to Mastercard and Visa's dominance, accounting for 95% of transactions using UK-issued cards.

In its findings, the regulator also said that pricing in the market was complex and opaque.

Acquirers, who enable merchants to accept card payments, faced difficulties accessing clear information about fees.

There were frequent delays and insufficient notice periods for fee changes from Mastercard and Visa, it added, leaving acquirers with minimal ability to negotiate the fees.

To address the issues, the PSR said it was considering a number of remedies, including improving transparency so businesses and acquirers could make more informed decisions, and requiring Mastercard and Visa to explain and consult on price changes.

Additionally, the PSR suggested greater reporting of financial information from Mastercard and Visa to enhance regulatory scrutiny.

“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,” said the PSR’s managing director Chris Hemsley.

“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.”

That, Hemsley said, led the regulator to provisionally conclude that the market was 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.”

Reporting by Josh White for Sharecast.com.