PSR Proposed Remedies for Card Fees Fall Short, Say Critics

The UK’s Payment Systems Regulator (PSR) has recently unveiled a consultation paper that proposes a series of measures aimed at enhancing transparency and accountability within the card fees market, specifically focusing on scheme and processing fees. Despite these efforts, industry stakeholders, especially UK retailers, have expressed disappointment, arguing that the proposals do not adequately address the entrenched market dominance of major players like Visa and Mastercard.

The Regulator's Report and Proposed Remedies

Earlier this year, the PSR released a report that identified a significant increase in scheme and processing fees by Visa and Mastercard, with a real-term rise of over 25% between 2017 and 2023. This escalation has reportedly led to an additional £170 million in annual costs for UK businesses. Such costs are typically transferred to consumers through higher prices or reduced merchant investments.

To counter these issues, the PSR’s consultation paper outlines new obligations for Mastercard and Visa. These include improving the clarity and accessibility of pricing information for acquirers and merchants, enforcing stricter rules around pricing governance, mandating the submission of regulatory financial data, and increasing the publication of key scheme information. The PSR anticipates that these measures will empower businesses to make more informed decisions and foster greater scrutiny of card payment expenses.

David Geale, the managing director of the PSR, emphasized the importance of these proposed remedies, stating, “Improving transparency will enable businesses to make informed choices about the card payment services they receive.”

Retail Industry's Criticism

Despite the PSR’s intentions, the British Retail Consortium (BRC) has voiced strong criticism of the proposed measures. They argue that the consultation is overly cautious and fails to tackle the structural issues that underpin high card fees. Chris Owen, the BRC’s payments policy advisor, described the regulator’s approach as “a failure of vision,” asserting that transparency alone is insufficient to address the market power wielded by the card networks.

Owen further argued that the PSR should leverage its regulatory authority to mandate pricing interventions and implement a long-term price cap to significantly reduce fees and bring meaningful reform to the market. Without such interventions, Owen warns that card schemes will continue to exploit their dominant position, with retailers and their customers bearing the brunt of the costs.

The BRC is advocating for direct price controls, akin to those applied in the cross-border interchange fees market. They contend that without these controls, UK merchants will remain vulnerable to opaque and unjustified increases in card costs, exacerbated by the “must-take” nature of cards in the British retail economy.

Next Steps

The consultation period will remain open until 28 May 2025, during which the PSR will consider feedback from stakeholders before deciding on the final package of measures to be implemented. This consultation is part of a broader effort as the PSR is set to integrate into the Financial Conduct Authority later in 2025, aligning with government initiatives to consolidate financial regulatory functions.

In summary, while the PSR's proposed remedies aim to enhance transparency and accountability in the card fees market, they have been met with criticism from industry stakeholders who believe that more robust measures are necessary to address the underlying market power of Visa and Mastercard. As the consultation progresses, it remains to be seen whether the PSR will incorporate stakeholder feedback and adopt more assertive measures to reform the card fees landscape effectively.