Today, the Payment Systems Regulator (PSR) publishes its final report into its card-acquiring market review.

The document sets out the regulator's conclusion that the supply of card-acquiring services does not work well for small and medium-sized merchants and large merchants with annual card turnover up to £50 million.

Merchants with annual card turnover between £15,000 and £50 million served by the five largest acquirers got little or no pass-through of the Interchange Fee Regulation (IFR) savings. This indicates that the supply of card- acquiring services[1] is not working well for these merchants.

The regulator’s findings also concluded that many small and medium-sized merchants do not regularly search, consider switching provider, or negotiate with their current provider. This is despite evidence that they could achieve a better deal by doing so.

The review was launched because of concerns that card-acquiring services may not offer value for money for merchants. Specific concerns raised included that acquirers might not have passed on savings they made from the interchange fee caps introduced by the IFR. Other concerns included a lack of transparency around the fees merchants pay to accept card payments and the difficulty merchants have comparing and switching providers.

The final report identifies three features that individually and in combination, restrict merchants’ willingness and ability to search and switch:

  • Acquirers and independent sales organisations (ISOs) don’t typically publish their prices and their pricing structures and approaches to headline rates vary significantly. This makes it difficult for a merchant to compare prices for ISOs, acquirers and payment facilitators.
  • The indefinite duration of acquirer and payment facilitator contracts for card-acquiring services do not provide a clear trigger for merchants to think about searching for another provider and switching.
  • POS terminals and POS terminal contracts can prevent or discourage merchants from searching and switching provider of card-acquiring services. This can occur as a merchant may need a new POS terminal if it switches provider of card-acquiring services but it could incur a significant early termination fee cancelling its existing POS terminal contract.

Remedying these features will improve outcomes for small and medium-sized merchants by:

  • Encouraging them to search and switch, or negotiate a better deal with their existing provider
  • Reducing the obstacles to getting a better deal

In its final Terms of Reference, the PSR said it would also examine how scheme fees have changed over the period 2014 to 2018. The regulator’s analysis indicates that scheme fees increased significantly over the period and a substantial proportion of these increases are not explained by changes in the volume, value or mix of transactions.

The PSR is also aware of recent announcements by Visa and Mastercard about increases in certain card fees, focused on cross-border transactions. These have happened as previous regulatory constraints have been removed since the UK left the EU. The PSR is very clear that the absence of specific regulatory caps is not itself a sufficient reason to increase fees, particularly if those increases are not obviously linked to costs. To address these behaviours, the PSR set out in its strategy its plans to unlock the potential of account to account payments to offer a viable alternative to card payments.

Genevieve Marjoribanks, Head of Policy at the PSR said:

“We expect the payments industry to help us develop effective and proportionate measures that increase merchant engagement and ultimately improve choice and prices.

“More can be done to make comparisons easier, which will help merchants consider their supply options more frequently, shop around, and potentially make savings. In turn this is good for their customers who may also see the benefit of those savings.”

Next steps

The PSR will publish a remedies consultation in early 2022. The regulator will seek views and information from stakeholders, with the expectation that the payments industry will play a key role in developing effective and proportionate measures that increase merchant engagement and ultimately improve choice and prices.

Following this, the PSR will publish a provisional decision on remedies (and potentially a draft remedies notice) for consultation later that year.



[1] 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.