The Payment Systems Regulator’s (PSR) interim report on the supply of card acquiring services, published today, shows that merchants could make savings by shopping around and either switching or negotiating with their current provider – but many small and medium ones don’t.
Card-acquiring services enable merchants – like a newsagent or supermarket – to accept card payments. The cost to a merchant of these services are reflected in the prices we all pay for goods and services.
While many small and medium merchants may not be getting a good deal, the report found the market for card acquiring services works well for the largest merchants. Broadly speaking, the PSR identified three areas of concern: on merchant contracts for card acquiring services, on point-of-sale (POS) terminal contracts, and on the difficulty for merchants to compare prices.
Therefore the interim report includes several potential remedies to make it easier to search and switch for a new provider or better deal, including:
- Requiring all contracts for card-acquiring services to have an end date, providing a prompt for merchants to shop around.
- Requiring changes to POS terminal contracts to limit their length, ending contracts that auto-renew for successive fixed terms and making it easier to exit POS terminal contracts without incurring exit fees.
- Making it easier for merchants to research and compare prices and options available to them.
The full interim report can be found here.
Chris Hemsley, the Managing Director of the PSR, said:
“This is the first detailed review of this important market. While these services are not something many consumers will have heard about, the cost that merchants pay to use them will, for example, affect how much their weekly food shop costs. This review is also important because more and more of us are using a card to make a payment.
“Our interim report shows that while the supply of card acquiring services works for the largest merchants, most other merchants – particularly smaller ones – may not be getting a good deal. Many merchants do not shop around or look to negotiate with their existing provider, and so we’re proposing changes that could improve that. Now we want to gather feedback on those options and our findings to help us finalise our approach.”
This is the first detailed review of this important market. While these services are not something many consumers will have heard about, the cost that merchants pay to use them will, for example, affect how much their weekly food shop costs. This review is also important because more and more of us are using a card to make a payment. Our interim report shows that while the supply of card acquiring services works for the largest merchants, most other merchants – particularly smaller ones – may not be getting a good deal. Many merchants do not shop around or look to negotiate with their existing provider, and so we’re proposing changes that could improve that. Now we want to gather feedback on those options and our findings to help us finalise our approach.
Chris Hemsley, the Managing Director of the PSR
What happens next?
The PSR is now consulting on the contents of this interim report and is keen to get feedback on the proposed remedies. The publication of the interim report will be followed by a consultation period of 12 weeks. The deadline for feedback is 8th December 2020.
After it has considered this feedback and discussed it further with stakeholders, the PSR will finalise its findings and publish a Final Report in 2021.
Why the PSR started this market review
The PSR launched its market review because of concerns that card-acquiring services may not offer value for money for merchants. As an economic regulator with a focus on competition, innovation and the interests of consumers, the PSR believes it important that merchants can shop around for a good deal, consider alternative providers or renegotiate with their current provider.
The PSR’s aim is to provide the first detailed overview of this sector and assess whether the supply of card-acquiring services is working well for merchants, and ultimately consumers. In line with the PSR’s objectives, the regulator also considers any impact on innovation and the interests of service-users.
What are card acquiring services and why do they matter?
These services are critical to the UK economy because they enable consumers and businesses to use their cards to pay for goods and services. There are around 163 million cards in issue in the UK and consumers made 14.8 billion debit card payments in 20191. The crucial role card-acquiring services play in the payments sector means that it’s important that they work well for merchants, and ultimately consumers.
The PSR has produced an infographic that explains what happens when you make a card payment. This can be found in the executive summary of the report.
This market review in the context of COVID-19
COVID-19 is having an extraordinary impact on the UK economy. It may accelerate many well-established trends, such as the growth in card payments, changing shopping preferences (including the shift to online spending), and increasing levels of card acceptance amongst businesses (particularly smaller businesses). If these trends continue to accelerate it’s even more important that the supply of card-acquiring services works well.
1 UK Finance, UK Payment Markets 2020 (2020), page 14