In response to a 30% increase in merchant fees without corresponding service improvements, the UK’s Payment Systems Regulator (PSR) is targeting Visa and Mastercard, aiming to reduce their dominant market share and bring transparency and fairness back to the market.
PSR’s Proposed Regulations: The PSR aims to curb the unchecked growth of scheme and processing fees by compelling Visa and Mastercard to offer higher transparency regarding their fee structures. The proposed rules mandate regular financial disclosures to the regulator and consultations with merchants before any fee alterations.
Fee Increases and Service Quality Concerns: Visa and Mastercard have hiked scheme and processing fees by over 30% in real terms over five years, while service quality hasn’t proportionally improved. The PSR expressed concern that fee increases aren’t justified by service enhancements, highlighting a market failure.
Economic Impact and Call for Competition: The PSR’s proposals seek to break the dominance of Visa and Mastercard to prevent unilateral fee hikes. The lack of competition raises concerns about higher costs for merchants and consumers. Trade bodies support reforms to introduce more players into the market and reduce financial strain on businesses.
Response from Visa and Mastercard: Visa and Mastercard defend their fee structures, citing the value they provide in ensuring secure payments and protecting against fraud. They argue that their fees reflect the immense value they bring to the economy and consumers, emphasizing competition in the payments sector.
Broader Regulatory Landscape: The PSR’s actions are part of a broader regulatory effort to scrutinize payment systems. Previously, the PSR called for a cap on interchange fees for cross-border transactions. Mastercard faces a class-action lawsuit in the UK alleging inflated interchange fees, while Visa and Mastercard settled an antitrust lawsuit in the US for $30 billion.
