Mastercard and Visa face crackdown by UK regulator on service provider charges | USAEMALL.com

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Visa and Mastercard will be required to share more information about the fees that they charge merchants under new rules proposed by the UK payments regulator.

The Payment Systems Regulator on Tuesday proposed that the two companies, which account for 95 per cent of all debit and credit card payments in the UK, should regularly disclose financial information to the regulator and consult merchants and retailers before changing their fees.

The proposal comes after the PSR found that while the card networks had increased their scheme and processing fees by more than 30 per cent in real terms over the past five years, there was “little evidence that the quality of service has improved at the same rate”.

Visa and Mastercard charge fees to sellers for access to their network and various processing fees for the authorisation, clearing and settlement of payments.

Unlike interchange fees, which are passed on to banks, scheme and processing fees go directly to card networks. These fees have in the past attracted less scrutiny than interchange fees because they account for a smaller portion of the charges incurred by sellers.

“Every time someone uses a Mastercard or Visa card, UK businesses have to pay fees,” said PSR’s managing director Chris Hemsley. “These fees have significantly increased over recent years, and those increases cannot be explained by improvement in service quality.”

Other proposed changes include making the card networks disclose pricing methodologies.

Hemsley said there were concerns about the transparency and quality of information made available by the card networks, with a PSR review finding “that the market is not working well”.

The PSR’s proposals are the latest attempt to loosen the grip of Visa and Mastercard on the payments sector, following complaints about the fees from merchants and retailers, and calls for more competition.

Trade bodies including the British Retail Consortium and the Federation of Small Businesses have called on the PSR to reduce card fees, with their “Axe the Card Tax” campaign.

Visa and Mastercard say the fees are a reflection of the value of their services which have in recent years been strengthened by investment in cyber security and network resilience.

Mastercard said it disagreed with the findings and that the “payments industry has never been more competitive” while the PSR’s analysis “fails to account for the significant investment required to provide a secure network” that prevents fraud.

It also pointed to a Boston Consulting Group report from 2021 that estimated its scheme fees across Europe as equivalent to 6p on a £50 transaction.

The company added that it would “continue to work transparently with the PSR” to demonstrate the value it brings to the UK economy.

Visa said its 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 parallel PSR investigation of interchange fees last year called for the reintroduction of a cap on interchange cross-border transaction charges, which was scrapped after the UK left the EU.

In the UK, Mastercard faces a class-action lawsuit that claims that the interchange rates it charged between 1992 and 2008 were passed on to consumers by shops and businesses via higher prices. ‎

In the US, Visa and Mastercard this year agreed to lower their transaction fees in a $30bn settlement of an antitrust lawsuit brought by merchants.