Regulator: Card Acquiring Too Costly for UK Merchants With Sales of Less Than £50m

The UK's Payment Systems Regulator (PSR) has found that services which enable retailers to accept credit/debit card payments ('card acquiring') cost too much for those with less than £50 million in annual card payments. It says those merchants should shop around or negotiate a better price with their current provider. In the meantime, the PSR is also considering certain regulatory changes below. Feedback should be emailed to cards@psr.org.uk by Tuesday 8 December 2020. Please let me know if I can assist you in either understanding and re-negotiating your acquiring terms and/or providing feedback to the PSR. 

Content of the report

The report provides a useful guide to the acquring industry (Chapter 3), how the various providers compete (Chapter 4), the analysis of pricing and quality outcomes (Chapter 5), as well as merchants’ ability and willingness to search and switch provider (Chapter 6). The problems and proposed solutions are discussed in Chapter 7.

What are the proposed changes?

The main changes being considered are:

1. whether all merchant service contracts for card-acquiring should have an end date, rather than simply being terminable on a certain amount of notice. This would apply to both acquirer and payment facilitator contracts with small and medium-sized merchants and large merchants with annual card turnover of up to £50 million. This might force merchants to re-tender for their acquiring business, but there is nothing stopping them doing that within the bounds of an existing contract. There is no substitute for a business having the internal discipline to revisit pricing on a regular basis.

2. where merchants with physical tills have a separate contract for their point of sale card terminals/devices ("POS terminals") the end dates for these contracts may not be aligned with the termination provisions of the acquiring service contract, so the PSR is considering:

• Limiting the length of POS terminal contracts to, say, 18 months.
  

• Banning the automatic renewal of POS terminal contracts for successive fixed terms.
  

• Declaring contracts for card-acquiring services and POS terminals as being 'linked', where they are sold together as a package by acquirers or Independent Sales Organisations (ISOs). This would enable the merchant to terminate both contracts at the same time without additional charge where, for example, the acquirer wishes to change the fees or other terms of the acquiring contract in ways that are not acceptable, or breaches the contract. But this would not apply where payment facilitators sell POS terminals to merchants separately. In those cases, it would be up to the merchant to negotiate the term and termination rights in the POS terminal contract to coincide with those provisions in the acquiring contract (to cover the situations where either the POS terminals or payment facilitator won't work with a new acquirer).

3. ISOs and acquirers could be required to facilitate price comparison by merchants, e.g. by providng pricing information in an easily comparable format (building on obligations on acquirers in the Internet Fee Regulation and the Payment Services Regulations 2017 to provide fee information to merchants).

Has the regulator got this wrong?

 

Probably not. The PSR has done plenty of homework here and the report seems thorough to me (over 20 years in payments, including spells working inside both a very large merchant and a very large acquirer). Its market research included consulting on the methodologies for: analysing whether the limits on interchange fees had been passed through; surveying merchants; and analysing acquirer profitability. The PSR also engaged with other regulators and all the various types of industry participants: acquirers, banks, ISOs, gateway providers, independent software vendors, online marketplaces, operators of card payment systems, payments consultancies, payment facilitators and trade associations.

 

In fact, as with most such iniatives in the financial services industry, this exercise is probably long overdue.

 

Please let me know if I can assist in your negotiations or feedback.