The Payments Systems Regulator to examine card fees in the UK

By Puja Sharma

The UK’s Payments Systems Regulator (PSR) announced plans to carry out two market reviews focusing on card fees – one on scheme and processing fees, and the other on cross-border interchange fees. The reviews focus on Mastercard and Visa, who according to the PSR have raised fees more than fivefold on some cross-border transactions since Britain left the European Union, whilst on scheme and processing fees, fees paid by acquirers have increased significantly from 2014 to 2018.

The U.K.’s Payment Systems Regulator (PSR) detailed plans for two market reviews addressing card fees. The first category will examine scheme and transaction fees, and the second category will examine cross-border interchange fees. In response to rising fees, both reviews will focus on Mastercard and Visa networks, which account for 99% of debit and credit card payments in the U.K.

According to the PSR, the fees paid by acquirers have increased significantly from 2014 to 2018. The announcement is in response to an earlier review which found that the accrued fees had increased significantly from 2014 to 2018. As a result, stakeholders have reported to the authority that scheme fees have continued to rise. The PSR found that cross-border interchange fees have also increased significantly in the past year. As a result of Brexit, Visa and Mastercard fees have more than tripled.

“It’s not surprising that the Payments Systems Regulator (PSR) has launched these reviews on processing fees and cross-border interchange fees. Merchants have been crying out for a fairer, faster, and more seamless solution for years now, not just in the UK, but worldwide.” Said Jordan Lawrence, Chief Business Development Officer at Volt.

Over the past several years, constant and significant increases in card fees are eating into merchants’ revenues, and these costs are passed on to consumers. The acceleration of cashless payments post-pandemic and with today’s cost-of-living concerns leads to bitter backlash from consumers.

“This is one of the reasons we are seeing rapid increases in the adoption of alternative payment methods, driven by consumer demand for control over their finances, as well as by merchants’ expectations for payments services which are more affordable. The UK and EU Open Banking and PSD2 legislation have sparked innovation across the payments industry and opened a clear path for innovative, alternative payment methods such as account-to-account (A2A) payments.” he further added.

Although card payments will continue to remain essential to the smooth running of the UK economy for the next few years, these new reviews are a welcome development in combatting the duopoly Mastercard and Visa currently have in the industry. Existing card payment processes were designed in the 1970s, but now they are inflexible, expensive, and simply do not fit with today’s consumer landscape. Visa and Mastercard are incredibly impressive businesses, but they’ve been the stable incumbents in this market for the last 60 or 70 years. Today, consumers and merchants alike are demanding faster, simpler, and more seamless services. Open banking and A2A/ open payments deliver on all three.

“One of my fundamental beliefs is that real-time payments will become the new normal. The real winner has to be the consumer; therefore the payment industry as a whole has to put the consumer first. User Experience is the new currency. Consumers, like businesses, increasingly demand real-time alongside security and convenience. It’s a transformational time for payments worldwide, and the UK is at the forefront of that evolution to a future of ultimate payments freedom and state-of-the-art UX.” Lawrence noted.