The UK's payment regulatory authority has expressed concerns over significant fee hikes imposed by Visa and Mastercard on retailers, highlighting issues of insufficient competitiveness in the payment card market. Despite the significant increase in costs, it has not provided a better service. Consequently, the Payment Systems Regulator (PSR) has proposed new measures to enhance transparency and competitiveness.

Costs to UK businesses

Visa and Mastercard dominate the UK's payment card market, a situation that has prompted increasingly stringent scrutiny from legislators. Recent findings from the PSR indicate that fees charged by these two companies have grown by over 30% in the past five years, after accounting for changes in transaction volumes, with no corresponding improvement in service quality.

In 2022, the total number of card transactions in the UK reached 27.1 billion, with a value of £954 billion. A provisional report by the PSR estimates that the increased costs are adding over £250 million annually to the expenses of UK businesses. With Mastercard and Visa accounting for 95% of card transactions in the UK, businesses have little choice but to bear these additional costs, often passing them on to consumers through higher prices for goods and services.

The PSR's report highlights the lack of effective competition, which allows Visa and Mastercard to raise prices unrestrictedly. However, Visa defends its fees by citing the high value it provides through security and operational resilience. Similarly, Mastercard disputes the findings of the PSR's investigation, claiming that there is intense competition in the payments industry and consumers have plenty of choices.

To address these issues, the PSR has proposed several remedial measures for public consultation. These include enhancing user transparency by requiring Mastercard and Visa to explain and document the reasons behind price changes. The PSR also recommends more detailed reporting of financial information to improve oversight of these companies' operations in the UK.

Solution Review

The public consultation period will continue until July 30th. The PSR is expected to release a final report on interchange fees and handling fees by the end of the year. If the final report supports the preliminary findings, the PSR will consult on implementing the proposed remedial measures to ensure more effective operation of the market for both businesses and consumers.

Meanwhile, the National Retail Federation (NRF) in the United States has recently opposed a settlement between Visa, Mastercard, and merchants regarding swipe fees. Despite commitments to reduce fees over five years and establish caps, the NRF believes the settlement falls short of addressing long-standing grievances from merchants.

The NRF expresses dissatisfaction with the settlement, emphasizing that the proposed remedies are insufficient and temporary. Commitments to reduce transaction fees by four basis points over three years and to lower overall average fees by seven basis points over five years fail to meet the NRF's expectations for meaningful relief.