UK Regulators Target Visa and Mastercard Over Competitive Concerns

The Impact of Rising Card Fees on UK Businesses A Regulatory Challenge

In recent months, the UK’s Payment Systems Regulator (PSR) has been at the forefront of a significant debate regarding the escalating fees charged by the dominant card schemes, Visa and Mastercard. The regulator’s findings have highlighted a pressing issue that is costing UK businesses an additional £170 million annually, a figure that has sparked considerable concern and calls for action.

The Fee Hike Conundrum

The PSR’s market review revealed that between 2017 and 2023, Visa and Mastercard increased their core scheme and processing fees by more than 25 percent in real terms. This substantial hike has resulted in higher costs for businesses, particularly small and medium-sized enterprises, which are already operating under tight margins.

The regulator’s investigation also uncovered that the lack of transparency in the fee structures imposed by these card schemes is exacerbating the problem. Mastercard and Visa have been criticised for not providing clear and detailed information to acquirers and merchants, leading to complex and incomplete information that hampers businesses’ ability to negotiate better deals.

Economic Implications

The additional £170 million in annual costs is not just a financial burden but also has broader economic implications. According to the PSR, these increased fees are impacting businesses’ ability to invest and grow, which can have a ripple effect on the overall economy.

David Geale, the PSR’s managing director, emphasised that the lack of competition in the market has allowed Visa and Mastercard to charge UK businesses millions of pounds more than they would in a properly competitive market.

Regulatory Response

In response to these findings, the PSR is taking steps to address the issue. The regulator has proposed a series of remedies aimed at improving transparency around costs and ensuring that acquirers and businesses receive clearer information about the services provided. This includes obligations on Mastercard and Visa to explain, consult on, and document the reasons for price changes and the pricing of new services.

Furthermore, the PSR is considering capping cross-border interchange fees, which saw a fivefold increase during 2021 and 2022, costing UK businesses an extra £150 million to £200 million per year. This move is part of a broader effort to ensure that UK businesses get a better deal and to foster a more competitive payments landscape.

Industry Perspectives

The debate over card fees is not without its complexities. Industry analysts argue that the fee structures are designed to balance the needs of both merchants and issuers. Hugh Thomas, Lead Commercial Payments Analyst at Javelin Strategy & Research, points out that interchange fees cover the risk that cardholders may not pay for their purchases and provide benefits such as not having to manage credit and handle cash transactions.

However, this balance is often skewed in favour of the card schemes, leading to calls from merchant associations and small business groups for more stringent regulations. The Federation of Small Businesses, for example, is advocating for caps on fees to control costs for small businesses in the short to medium term while steps are taken to increase competition in the cards market.

International Context

The issue of card fees is not unique to the UK. In other regions, such as Canada, agreements between card networks and merchants have been established to periodically review interchange fees and ensure they are priced appropriately. This collaborative approach has been successful in maintaining a balance between the interests of all parties involved.

Conclusion

The rising fees imposed by Visa and Mastercard are a significant concern for UK businesses, particularly in an economic environment where every pound counts. The PSR’s efforts to enhance transparency and potentially cap certain fees are steps in the right direction. However, achieving a fair and competitive payments landscape will require ongoing dialogue between regulators, card schemes, and merchant associations.

At Cutts & Co Accountancy, we understand the impact that these fee increases can have on your business. As your trusted financial advisers, we are committed to keeping you informed about regulatory changes and helping you navigate the complexities of the payments system. By staying vigilant and advocating for fair practices, we can work together to ensure that your business remains competitive and resilient in the face of evolving market conditions.