The Payment Systems Regulator (PSR) has delivered a stark verdict on the state of the UK’s card scheme and processing fees market, highlighting substantial fee increases imposed by Mastercard and Visa alongside weak competitive pressures.
PSR takes aim at rising card scheme fees
In its final report, the PSR reveals that since 2017, Mastercard and Visa have raised their core scheme and processing fees charged to acquirers by at least 25%, resulting in an additional £170 million per year in costs for businesses.
The report underscores that these rising fees have created significant financial strain for UK merchants, particularly smaller retailers, impacting their capacity to invest and grow.
The PSR’s findings come after a comprehensive market review, which built on its interim report published last year.
The final report confirms what many industry players and merchant groups have long suspected: the UK card payments market lacks effective competition, allowing Visa and Mastercard to increase fees with limited resistance.
A Market That Doesn’t Work for Merchants
One of the regulator’s most striking conclusions is that Mastercard and Visa face “ineffective competitive constraints” in providing scheme and processing services to UK acquirers and merchants.
Despite the emergence of alternative payment methods such as digital wallets and Open Banking, these alternatives have yet to exert sufficient downward pressure on card scheme fees.
The PSR also found that Mastercard and Visa do not provide sufficiently clear or detailed fee information to their customers.
Acquirers and merchants receive complex, incomplete and difficult-to-navigate pricing structures, adding unnecessary costs as businesses attempt to make sense of opaque fee schedules.
This lack of transparency makes it difficult for acquirers to negotiate better deals, while merchants are left with few options but to absorb rising costs or pass them onto consumers.
A £170 Million Burden on UK Businesses
The PSR’s analysis shows that the sharp rise in scheme and processing fees has resulted in UK businesses paying at least £170 million more each year compared to 2017.
This increased cost of doing business particularly hurts smaller retailers, who typically have limited negotiating power and thinner margins.
The British Retail Consortium (BRC), which has long campaigned for regulatory action, welcomed the report’s findings.
Chris Owen, Payments Policy Advisor at the BRC, said the report “confirms the harms arising from the lack of competition in the card schemes market” and called for immediate pricing remedies to reverse unjustified fee increases.
What Happens Next?
The PSR intends to launch a consultation shortly on potential remedies to address these systemic problems.
These could include improved transparency obligations, interim pricing controls, or even price caps if the regulator concludes that competition cannot be restored through transparency and negotiation alone.
Payments industry experts have also weighed in.
Willem Wellinghoff, Chief Compliance Officer at Ecommpay, described the report as a vital step toward ensuring that the underpinning infrastructure of UK payments works fairly for all participants.
With over 85% of UK consumer spending processed via credit or debit cards, the stakes are high.
As the UK economy navigates a challenging period of slower growth and high inflation, ensuring fair and transparent card fees will be essential in supporting businesses’ ability to invest, grow and remain competitive.
The PSR’s consultation process will be closely watched, with merchants, acquirers and consumer groups all expected to demand more assertive intervention to restore fairness to the heart of UK card payments.
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