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Payments regulator plans review of UK card-acquiring services market

The market for card-acquiring services is set to be scrutinised by a UK regulator after concerns were raised about the way fees are levied and the ease with which retailers can switch providers.

Card-acquiring services are services provided in the context of the processing of transactions made by payment cards. A number of different businesses are involved in this market, including the payment card providers that operate card payment schemes, and the banks that process the payments made via those schemes on behalf of retailers and their customers, whether businesses or consumers.

The Payment Systems Regulator (PSR) said the purpose of its proposed market review is to ensure the supply of card-acquiring services is "working well for merchants, and ultimately consumers".

The planned review has been prompted by issues flagged by "various stakeholders", the PSR said.

Concerns raised include the level of transparency provided over the fees that merchants pay to accept card payments, as well as with regard to whether the firms that process card payments on behalf of retailers – merchant acquirers – have passed on savings they have made as a result of an EU cap on interchange fees to the retailers.

Alan Davis, competition law expert at Pinsent Masons, the law firm behind Out-Law.com, said: "The Interchange Fee Regulation (IFR) capped credit card multilateral interchange fees at 30 basis points per transaction and debit card fees at 20 basis points. Although the IFR did not explicitly require it, it was always intended that this reduction would be passed on by merchant acquirers to retailers in the form of lower merchant service charges. The PSR will therefore want to understand whether competition in the acquiring market is working effectively – if it is, one would expect to see the level of merchant services charges being competed down."

"It is likely that larger merchants will have been able to secure significant reductions in fees but smaller and medium sized retailers may not have been able to succeed in negotiating the same savings which may also be due to a variety of different reasons that the PSR wishes to explore," he said.

"However, the question then arises whether a review would also need to be undertaken as to whether merchants are passing or will pass on savings to end-consumers in the form of lower retail prices. There has always been a lot of scepticism as to whether consumers would ever really benefit from the IFR," Davis said.

Further concerns have been raised about barriers to comparing and switching acquirers, the charges that card scheme operators impose on the merchant acquirers, known as 'scheme fees', and the portion of those scheme fees that retailers pay to acquirers, the PSR said.

The terms of reference for the review are open to consultation (18-page / 220KB PDF). Feedback can be submitted up until 14 September. The PSR said it intends to publish the finalised terms of reference for the review before the end of 2018 along with its planned timetable of work.

"As part of our work, we will examine how competition in the supply of card acquiring services operates, and the outcomes of the competitive process," the PSR said. "This includes looking at the fees merchants pay for card-acquiring services and the quality of service they receive."

Davis said: "In carrying out this review, I would also expect the PSR to think more widely about the payments market given the fast pace of change in how payments are made through innovative payment methods and the impact of 'open banking' and fintech. Further regulation of card acquirers in a narrow market context may not be the best approach."

According to the regulator, almost £700 billion worth of transactions in the UK were made using debit and credit cards in 2017.

Hannah Nixon, managing director of the PSR, said: "With more and more of us using our payment cards to make purchases, we want to make sure that retailers that accept card payments can access card-acquiring services that are competitive, offer value for money and are innovative - working in both their interests, and consumers’ interests too. This is about making sure that payment systems work well for everyone, and we will look to make changes if we think improvements should be made."

The PSR is tasked with promoting effective competition and innovation in payment systems and ensuring that those systems are operated and developed in the interests of business and consumer users of those systems. 

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