Matthew Cherry's speech for PSE Consulting Merchant Acquiring Conference, 14 November 2018


This is the text of the speech as drafted and may differ from the delivered version.

Good morning, and thank you for inviting me to speak today.

Earlier this year, the PSR published draft terms of reference for a market review into card-acquiring services. We’re aiming to understand whether the supply of these services is working well for UK merchants, and ultimately consumers.

We plan to get input from a wide range of parties to inform our work. We intend to seek information and evidence not just from suppliers of card-acquiring services, and the merchants who buy those services, but also other parties that help merchants to accept cards. 

Many of you will work for firms that can help us understand the relevant issues. So, my primary aims today are to raise awareness of our work and encourage you to contribute to our market review. There are various ways to do that, which I’ll come on to talk about.

I’ll begin by giving you a short introduction to the PSR. I’ll then give you an overview of the draft terms of reference and conclude with a summary of our next steps.

I must emphasise that today’s presentation reflects what we said in the draft terms of reference. We’re currently preparing the final terms of reference so I can’t comment on whether, or how, our thinking has evolved since. That wouldn’t be fair to those not present today.

So, who is the PSR?

We are the economic regulator of the UK payments industry.

Our vision is for payment systems to work well for all who use them – for payment service providers, businesses, charities and all of us as individuals. 

This means we want them to be accessible, secure and reliable, and represent value for money.

This is supported by our statutory objectives under FSBRA – the Financial Services (Banking Reform) Act 2013, which is the legislation that created the PSR. These objectives are to promote competition, innovation, and the interests of all those that use payment systems.

We have powers to regulate payment systems designated by the Treasury. There are eight designated payment systems, including Mastercard and Visa. 

We regulate all the participants in these payments systems. That is: the operators who administer the system, the PSPs who use the system to provide payment services, and the infrastructure providers who provide the hardware, software and communications networks that allow the systems to function.

As well as being a regulator, we’re also a competition authority. Our competition powers extend to participation in all payment systems, not just those designated by the Treasury.

Since we were established, the government has also given us additional responsibilities to monitor and enforce EU legislation For example, we are the lead competent authority for the Interchange Fee Regulation, which has brought about major changes to the way that card payment systems operate.

The payments landscape is going through many significant changes, driven by new technology and changing consumer needs. We have a varied portfolio of work to help ensure that these changes happen in a way that benefits us all. One example of our work is the market review into card-acquiring services that I’m focusing on today.

What do I mean by card-acquiring services?

In the draft terms of reference, we described them as services to accept and process card payments on behalf of a merchant resulting in a transfer of funds to the merchant.

This may look familiar. It’s based on the definition of card-acquiring services in the Payment Services Regulations 2017, which transposed PSD2 into UK law.

Card-acquiring services matter. Card usage in the UK is high and has been growing strongly in recent years and in 2017, debit cards overtook cash as the most frequently used payment method for the first time. Any merchant that wants to accept card payments must buy card-acquiring services. 

One way to do this is to buy these services from acquirers. You’ll all be familiar with acquirers as firms that are licensed by a card scheme operator to give merchants access to the card payment system and underwrite their transactions among other things.

Merchants – typically smaller merchants – can also buy card-acquiring services from a payment facilitator. The payment facilitator contracts with an acquirer on behalf of the merchant.

The costs merchants incur to buy card-acquiring services may ultimately be reflected in the prices they charge or the products they provide to their customers. The quality of the services they receive may also affect the experience they can offer to customers paying by card.

Importantly, there are a whole variety of services other than card-acquiring services that a merchant might buy to help them accept card payments. For example, a merchant might lease a point-of-sale terminal. Services like this may still affect the supply of card-acquiring services. I’ll come on to explain how we proposed to take account of these services and the entities that provide them.

As I mentioned, we published draft terms of reference for our market review in July. A market review is one of our tools for investigating how well the market for payment systems, or the markets for services provided by payment systems, are working for the people and organisations that use, or are likely to use, these services.

This market review marks a new direction for the PSR. 

Since we were established in April 2015, much of our external-facing work has focused on interbank payment systems. Our work on cards has been mainly limited to monitoring and enforcing compliance with the IFR.

We’ll now be devoting significantly more attention to card payment systems. This shift was prompted by concerns our stakeholders raised with us, which I’ll describe in a moment.

We were pleased with the interest the draft terms of reference received – we had over 35 submissions from a variety of organisations, including merchants, card scheme operators and acquirers. These submissions are informing our work to prepare the final terms of reference.

This is already a good resp