Card fees: UK payment systems regulator publishes final terms of reference for two market studies | Hogan Lovells


In November 2021, the PSR published a final report on its review of the card acquiring services market. See these Engage articles on the final report and solutions for more details. PSR had carried out the review based on concerns that card acquiring services did not offer merchants value for money.

As part of the market review, the PSR had analyzed the fees that acquirers paid to card payment systems. He found that the scheme and processing fees paid by acquirers to Mastercard and Visa increased significantly over the period 2014 to 2018. A substantial proportion of these increases are not explained by changes in volume, value or composition of transactions. The review also considered the impact of the EU Interchange Fee (IFR) regulation.

The PSR then decided to launch two market studies on card fees – one on scheme and processing fees, and the other on cross-border interchange fees between the UK and the EEA. Following consultations on the draft terms of reference in June this year, PSR has now published the final terms of reference for the reviews.

Review 1: Card System and Processing Fees

In a press release, the PSR points out that cards are the most popular method of payment in the UK, with Visa and Mastercard accounting for 99% of debit and credit card payments. To accept these card payments, businesses must pay card system and processing fees, which are often passed on to consumers by increasing prices. This is of particular concern given the rapidly rising cost of living.

In the final terms of reference, the PSR confirmed that the review will focus on the Mastercard and Visa systems. The PSR decided to examine Mastercard and Visa to understand whether the provision of schema and processing services works well enough, with regard to competition, innovation and the protection of service user objectives. Since PSR already has several programs exploring the impact of other payment methods (e.g. development of the new payment architecture), this particular review will not extend beyond the card system and Processing fee.

Data will be collected for the period 2017 to 2022, but PSR will also leverage its broader review of the card acquiring market for the period 2014 to 2018.

Revision 2: Cross-Border Interchange Fees

The PSR wishes to understand the rationale behind the increase in interchange fees for Mastercard and Visa consumer debit and credit card transactions between the UK and EEA since Brexit, and the effect this has had on UK businesses and consumers.

The increase in consumer cross-border interchange fees covers certain card transactions between the UK and the EEA when the cardholder is not present (such as payments made by telephone or online). Prior to Brexit, these fees were capped by the IFR. Since the UK left the EU, Visa and Mastercard have increased these fees fivefold.

The PSR will focus its review on three main questions:

  • What are the potential drivers and justifications for increases in interchange fees since Brexit?
  • Is there evidence that the increase in interchange fees is the result of an increase in other relevant costs as a result of Brexit?
  • What is the impact of increased interchange fees on competition, innovation and service users in the UK?

And after?

PSR expects to publish a report outlining its interim findings for the review of the card scheme and processing fees in Q4 2023, and a final report, including corrective actions, in Q2 2024. market players should be sent in the fourth quarter of 2022. .

Interim findings of the cross-border interchange fee review will be published in Q2 2023 and a final report in Q4 2023. Market participants are invited to submit evidence and responses between Q3 2022 and Q1 2023.

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