Visa and Mastercard Under Regulatory Scrutiny in the UK Over High Merchant Fees

Payment Contributor
Fri, 24 May 2024 14:55:27 +0000
PSR UK, Chris Hemsley, Mastercard, Visa

The UK’s Payment Systems Regulator (PSR) is intensifying its oversight of Visa and Mastercard, aiming to reduce their overwhelming market dominance and address the issue of soaring merchant fees. With both companies controlling 95% of card transactions in the UK, their recent 30% fee hike, unaccompanied by any service improvements, has prompted a regulatory crackdown aimed at restoring transparency and fairness in the market.

Regulatory Measures to Address Rising Fees

In response to the significant increase in merchant fees, the PSR has proposed new regulations targeting Visa and Mastercard. The primary objective is to curb the unchecked escalation of scheme and processing fees, which have surged by over 30% in real terms over the past five years. This increase has not been justified by corresponding enhancements in service quality, raising concerns among merchants and regulators alike.

Under the proposed rules, Visa and Mastercard will be required to provide greater transparency regarding their fee structures. This includes regular financial disclosures to the PSR and mandatory consultations with merchants and retailers before implementing any fee changes.

Fee Increases and Service Quality Concerns

The PSR’s investigation revealed that the fee increases imposed by Visa and Mastercard have not been matched by improvements in service quality. Chris Hemsley, Managing Director of the PSR, emphasized this point, noting that the rising costs for merchants are not justified by the value received.

This disparity between escalating fees and stagnant service standards is at the forefront of the PSR’s efforts to alleviate the financial burden on merchants and promote a fairer market environment.

Economic Impact and Call for Competition

The PSR’s proposals also aim to foster greater competition within the card payment industry. The lack of competitive pressure on Visa and Mastercard has allowed these companies to unilaterally increase fees, impacting merchants and consumers alike. Trade bodies such as the British Retail Consortium and the Federation of Small Businesses have expressed support for the PSR’s initiatives, highlighting the need for market reforms to introduce more players, reduce costs for businesses, and strengthen the overall economy.

The economic consequences of the fee hikes by Visa and Mastercard have been substantial, with the British Retail Consortium reporting an additional £250 million burden on businesses. Small retailers, in particular, are feeling the strain, as card fees significantly cut into their profit margins.

Facing regulatory scrutiny, Visa and Mastercard have defended their fee structures, asserting that their charges reflect the value provided through secure payments and fraud protection.

Broader Regulatory Landscape

The PSR’s actions against Visa and Mastercard are part of a wider regulatory effort to scrutinize payment systems. Previously, the PSR advocated for a cap on interchange fees for cross-border transactions, a limit that was lifted post-Brexit. Additionally, Mastercard is facing a class-action lawsuit in the UK over alleged inflated interchange fees, while both Visa and Mastercard settled an antitrust lawsuit in the US for $30 billion, agreeing to lower transaction fees.