UK payments regulator to review fees charged by Visa and Mastercard

The UK payments regulator is set to launch two separate market reviews of the fees charged by Visa and Mastercard.

The Payment Systems Regulator will assess the scheme and processing fees charged by the card issuers and will separately examine cross-border interchange fees.

The watchdog alleged that the fees paid by acquirers increased significantly over the period 2014 to 2018, but that “a substantial proportion of these increases are not explained by changes in the volume, value or mix of transactions”.

Visa and Mastercard decidedly dominate the UK payments space. 

In 2021, there were 21 billion UK issued debit card payments totalling £702bn according to the watchdog, while UK issued credit card payments in the same year numbered 3.5 billion and amounted to £182bn. 

Mastercard and Visa accounted for around 99% of the combined total of UK debit and credit card payments in 2021, both by volume and value.

The Payment Systems Regulator said it is planning to review whether there are factors that mean that Visa and Mastercard have market power and face weak constraints in setting scheme and processing fees, such as high barriers to entry and limited payment acceptance alternatives.

Multiple private sector bodies have come out against the high fees charged by card issuers over the past year.

The British Retail Consortium (BRC) estimated that retailers in the UK and the EEA now face an estimated £150m a year in cost increases to accept cross-border card payments, with British retailers alone shouldering an extra £36.5m, or £100,000 every day.

Last November, Andrew Cregan, payments policy adviser at the British Retail Consortium called on the Government and the Payment Systems Regulator to “urgently intervene to reverse these spiralling charges on cross-border trade”. 

The payments watchdog said it is planning several engagement events with stakeholders during the consultation and that it will also continue to liaise with other authorities (including financial regulators and the Competition and Markets Authority) where appropriate. 

The Payment Systems Regulator said it plans to publish the final terms of reference (ToR) for the market review in Autumn 2022.

“We’ve been gathering information since the start of this year and have identified that a detailed review of the market is needed,” said Natalie Timan, head of strategy at the Payment Systems Regulator.

“We have set out what we will assess in these reviews, which will then inform any decisions on the steps we might need to take to promote effective competition or to address any harm.”