Understanding Card Scheme Fees: Payment Systems Regulator Report

The Payment Systems Regulator has issued a consultation paper/interim report burrowing further into the apparent lack of competition between the two major card schemes and potential harm to customers, particularly on the acquiring side. The PSR identified in a previous report that the card acquiring market wasn't working for UK merchants whose turnover is less than £50m, with one problem being the inability to compare pricing. This report reveals that fees charged by the two main card scheme operators have increased 30% in real terms over 5 years, with no link to improvement in service quality. The report looks at how the scheme operators deal with both their card issuing and acquiring members, but tends to focus on problems that acquirers have in understanding fees imposed on them, since they represent about 75% of the operators' net scheme/processing fee revenue. The specific problems and the proposed remedies are outlined below. There’s an opportunity to respond to the consultation by 31 July. Please let me know if I can help you understand the potential commercial or regulatory impact in your case.

In particular, the report sets out a number of areas where the quality of service is leading to poor outcomes for acquirers and merchants, including a lack of transparency in billing information for mandatory and optional fees, and as to the triggers of (potentially avoidable) 'behavioural fees' (intended to deter certain practices or incentivise the adoption of specific technical solutions):

(a) acquirers often experience difficulties accessing, assessing and acting on information they receive from Mastercard and Visa – which requires time to query, and some even employ consultants or pay for additional reporting or other services from the schemes themselves to understand pricing and fees charged;

(b) as a result, many acquirers aren't able to adopt a very sophisticated assessment of the impact of scheme/processing fees - and even where they can pass fees on contractually they may decline to do so or ‘misbill’ (either under/over bill) merchants;

(c) A large majority of acquirers described issues relating to the transparency of information on mandatory and optional fees - in fact acquirers reporting such issues accounted for over 90% of the total acquiring market;

(d) Poor outcomes for acquirers include:

• Acquirers have difficulty understanding behavioural fees, which may also be distorting the behaviour and responses of acquirers and merchants, and limit the point of the behavioural fees;
• Acquirers also find it difficult to understand mandatory and optional scheme and processing fees and how they apply, including whether certain services (and therefore the fees) are optional or mandatory;
• Acquirers have problems accessing and clarifying information with the scheme operators, in a timely fashion or sometimes at all.

(e) remedies include requiring Mastercard and Visa to:

• Develop and publish a pricing methodology to explain how the prices of these services relate to costs, together with obligations to document decisions;
• Demonstrate that a service is ‘optional’, i.e. that viable alternatives to supply by the two card schemes exist;
• Provide acquirers and merchants with more accurate and relevant information about behavioural fees, so they can be avoided or at least their cost can be correctly allocated;
• Consult more widely before introducing new services or making changes to prices.
• Provide bespoke materials to help specific businesses understand the scheme services being supplied;
• Improve the quality and timeliness of information provided to acquirers, including billing information.

Please let me know if I can help you understand the potential commercial or regulatory impact in your case.