Payments regulator slams Visa and Mastercard for merchant fee hikes but forgoes price caps
The UK payments regulator has said there is “little evidence” that fee hikes by Visa and Mastercard on retailers have majorly improved the quality of service in a scathing report that found the card giants do not face effective competition.
The Payment Systems Regulator (PSR) said in an interim report on Tuesday that it was considering mandating the US firms to provide greater reporting to the watchdog on their UK operations and requiring them to explain pricing decisions.
The PSR found that over the last five years, Visa and Mastercard raised their their scheme and processing fees by more than 30 per cent in real terms, estimating that the hikes had led to £250m in extra annual costs for UK businesses.
It added that firms have little choice but to pay these costs as Visa and Mastercard account for 95 per cent of transactions using UK-issued cards.
However, the PSR has for now spared Visa and Mastercard from price caps on their scheme and processing fees, citing a lack of information.
“The issues we have encountered gathering suitable data from the card schemes mean that it is not an appropriate response, at the present time, to the harm we have identified,” it said.
“It would be challenging, based on the evidence we currently have, to design a price cap that was consistent with our statutory objectives.”
The PSR added that it may have opted to set caps if it had access to better data from Visa and Mastercard.
Chris Hemsley, the PSR’s managing director, told the Treasury Committee in January that he had considered asking the government for greater powers to request information from firms – while MPs said Visa and Mastercard were “running rings around” the regulator.
Governments across the world have made proposals to give merchants more choice in the payments market. The UK government backed a review last November that called for greater competition in the space and a “digital alternative” to Visa and Mastercard that would let more retailers take payments without a card network.
Prominent trade bodies including the British Retail Consortium and Federation of Small Businesses have joined forces for an “Axe the Card Tax” campaign that is calling on regulators to clamp down on rising card fees and “anti-competitive behaviour”.
Visa and Mastercard have said their fees reflect the value provided to businesses and consumers in ensuring secure payments and protecting them from fraud.
A Visa spokesperson commented on Tuesday: “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.”
A Mastercard spokesperson said it disagreed with the PSR’s findings and that the payments sector “has never been more competitive”.
“We will continue to work transparently with the PSR and demonstrate the significant value Mastercard and electronic payments bring to the UK economy,” they added.