In this thought piece, Kate Fitzgerald, our Head of Policy, explains why the PSR is investigating card fees, the work we’re doing and how you can share your views with us.
When we purchase something in a store or online, there are an increasing number of ways to pay – but the majority of retail purchases still rely on Mastercard and Visa. These two schemes have recently been increasing their fees and the PSR is asking important questions about whether they face sufficient competitive constraints.
We’re carrying out two market reviews to examine the fees for using the Mastercard and Visa card schemes. In one of these, we’re focusing on the fees that customers (including acquirers and issuers) pay Mastercard and Visa for scheme and processing services. These services allow these customers to participate in and use the card systems.
What we’re focusing on
Our wide-ranging programme of work will help us determine whether the supply of these services is working well – and if not, what we should do about it. We’re currently gathering and evaluating evidence from Mastercard and Visa and other stakeholders. In the coming months, we’ll publish a series of working papers setting out our analytical approach and initial findings on a range of issues:
- What factors influence and constrain the card schemes in setting their fees, and the impact of those factors: For instance, we’ll explore how far other payment methods constrain Visa and Mastercard in setting scheme and processing fees. This will include examining how customers have responded to proposed and actual fee changes. We’ll also evaluate how far the prospect of new competitors constrains the card schemes, focusing on any barriers to entry and the role of network effects.
- The profitability of their UK card businesses, and how it’s changed over time: Profitability can be measured in different ways, and our initial working paper on this issue will begin to set out our proposed approach. We’ll include an initial view of their profitability, based on their published European and Global statutory financial statements.
- How the fees charged by card schemes and the payments they make to customers have changed over the last five years: We’ll investigate how changes to fees and payments have affected different customers. We’ll also assess if the card schemes have applied their fee increases to all services, or concentrated on a small number.
- The relationship between card schemes and their customers: We’ll examine what information the card schemes provide to their customers, and whether customers understand the services they buy and the fees they pay. Can customers make well informed decisions, particularly when fees change? And do the card schemes take their customers’ requirements and preferences into account when they introduce new services or change their fees?
- The detail of some of the most significant fee changes: We’ll consider some of these issues in more depth through case studies. And we’ll examine the background to some of Visa and Mastercard’s most significant fee increases over the last five years. Are the outcomes and behaviour in these instances consistent with other evidence on their competitive constraints?
This isn’t an exhaustive list of all our work or the issues we’re interested in. We discuss these in more detail in our Final Terms of Reference. Many of these issues are interrelated, and any provisional decision we make will be informed by our findings from all of them.
How you can get involved
It’s great that we’ve already heard from so many interested parties and we will continue to engage with stakeholders as we carry out our work. If you wish to discuss any aspect of the market review, please get in contact with us on email@example.com. However, now isn’t your only chance to share your views; we’ll be accepting input on our findings as we publish each working paper and, ultimately, upon our provisional decision which we expect to publish in Q4 2023. Additionally, as we continue the information gathering and analysis phase of the market review, we will be seeking information from a number of parties, both formally and informally. Please check our website for updates or contact us on the above email address to let us know if you’d like to be informed when new publications are added.
It is critically important to all of us that UK payments work well, and we look forward to engaging with many of you throughout the market review.
MR22/2.2: Final terms of reference for cross-border interchange fees market reviewFinal terms of reference for market review of cross-border interchange fees.
MR22/1.2: Final terms of reference for scheme and processing fees market reviewFinal terms of reference for market review of card scheme and processing fees.