Profitability analysis can help us understand how competition is functioning. Its usefulness depends on the availability of relevant and reliable financial information.
This annex describes the analysis we conducted on whether acquirers passed through the cost savings they made from the Interchange Fee Regulation (IFR) caps (‘IFR savings’) to merchants between 2014 and 2018.
The main findings of this analysis are set out in Chapter 5 of the interim report. This annex provides further details on the methodology, data, and sensitivity analysis conducted to test the robustness of the findings. This annex supplements Chapter 5 of the interim report but can be read as a standalone document. It is aimed at a reader who wants to understand the technical detail of our analysis.
This annex explains our original, intended methodology that we consulted upon. It then discusses the consultation responses and the data that we received. In light of this, it then sets out how and why we revised our approach. Finally, it summarises the main results of our analysis and our provisional findings.
This annex has three sections:
- approach to profitability analysis
- information requested and information received
- analysis and results
This document should be read alongside:
- Card-acquiring market review interim report (MR18/1.7)
- Annex 1 Industry Background (MR18/1.7 Annex 1)
- Annex 2 Pass-through analysis (MR18/1.7 Annex 2)
- Annex 4 Scheme fees (MR18/1.7 Annex 4)
- Glossary (MR18/1.7 Glossary)
- Annex 5 Barriers to entry and expansion (MR18/1.7 Annex 5)
- IFF Research - annex on merchant survey results
- IFF Research - annex on their technical report