Mastercard and Visa do not face enough competition in the payments market, meaning UK businesses are forced to pay higher fees to process transactions, according to a new report by the UK payments watchdog.
The Payment Systems Regulator (PSR) said it has provisionally concluded the cards market is not working well and it is considering placing new rules on the two major players.
But it rowed back on previous suggestions that it could introduce a price cap to protect UK businesses from certain fees.
Mastercard and Visa account for 95% of transactions using UK-issued cards, the PSR revealed in its report.
But this means they do not face effective competition when dealing with merchants and acquirers, according to the regulator.
Acquirers are banks or financial institutions which act as an intermediary between retailers and payments firms so they can process card payments.
These fees have significantly increased over recent years, and those increases cannot be explained by improvement in service quality— Chris Hemsley, Payment Systems Regulator
“Every time someone uses a Mastercard or Visa card, UK businesses have to pay fees,” said PSR managing director Chris Hemsley.
“These fees have significantly increased over recent years, and those increases cannot be explained by improvement in service quality.”
The watchdog said it found evidence that the two dominant payments firms provide complicated and unclear pricing information to card acquirers, and that there are insufficient notice periods to implement fee changes.
There is also very little room for acquirers to negotiate any fees, the report found.
The PSR said it had considered whether it would be appropriate to impose a price cap, such as controlling the level of scheme and processing fees currently set by Mastercard and Visa.
But it concluded it would be “challenging, based on the evidence we currently have, to design a price cap” that is consistent with its objectives.
Instead, it suggested a number of possible “remedies” to address some of the issues in the market.
These include making the market more open so that businesses and acquirers can make more informed decisions about whether to switch to alternative suppliers.
It is also considering requiring Mastercard and Visa to explain the reasons for price changes and the pricing of new services, or more regularly report financial information to the PSR.
Mr Hemsley said: “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.”
It is set to publish a final report towards the end of this year.
The payments industry has never been more competitive, which is reflected in the wide choice of payment options available to British consumers and businesses— Mastercard
Mastercard said it “disagrees” with the findings of the review.
A spokesman for the business said: “The payments industry has never been more competitive, which is reflected in the wide choice of payment options available to British consumers and businesses.
“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 will continue to work transparently with the PSR and demonstrate the significant value Mastercard and electronic payments bring to the UK economy.”
A spokesman for Visa said: “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.”
