On Wednesday (July 13), the Treasury Committee at the U.K. Parliament sent letters to Visa and Mastercard requesting them to explain their increases in cross-border interchange fees after the U.K. left the European Union. The companies have until July 27 to respond.
This inquiry comes after the Payment Systems Regulator (PSR) explained in a letter dated July 4 to U.K. lawmakers about the two market reviews that it is planning to conduct on processing fees and cross-border interchange fees. In this correspondence, the regulator told lawmakers that is concerned that Visa and Mastercard´s ability to raise prices is an “indication that the market(s) or aspects of market(s) is not working well.”
As a reference, Visa and Mastercard increased cross-border fees in October 2021 from 0.2% to 1.15% for debit cards and 0.3% to 1.50% for credit card transactions.
The first market review, on scheme and processing fees, stems from a previous market review carried out by the PSR on the card-acquiring market. In that market review, the regulator found that fees paid by acquirers had increased from 2014 to 2018. In June, the regulator published its final remedies in the market to make it more transparent and to allow acquirers to negotiate better terms with the card networks. The Treasury Committee is not inquiring Visa and Mastercard about processing fees.
However, the second market review, on Visa and Mastercard’s cross-border interchange fees, may not come as a surprise to many, as these increases already raised some flags at the PSR much earlier. In an interview with PYMNTS in March, Andrew Self, senior policy manager at the PSR, already mentioned that the card-acquiring market review revealed that cross-border interchanges fees have increased over the years and this, for the PSR “poses important questions around whether there are sufficient competitive constraints on card schemes.”
And this is exactly what the regulator is trying to understand with the market review, and now with the help of the U.K. Treasury Committee. According to the regulator, the purpose of the market review is “to understand the rationale for the increases” particularly because the PSR told the committee that it has not seen “evidence that shows that there have been significant changes in the costs” for card issues since the U.K. left the EU and the EU regulation which capped these fees is no longer applicable. PYMNTS reached out to both Visa and Mastercard for comment.
In terms of possible outcomes from the market reviews, unlike other regulators that can impose hefty fines or structural remedies, the PSR can only impose lighter remedies. For instance, the regulator can impose some measures that would promote effective competition like making general or specific directions, requiring the operation to change operating rules or making recommendations. The PSR also said in the correspondence with the committee that it is not planning to impose interim caps on fees, but it nevertheless leaves this option available if this measure is deemed appropriate in the future. Additionally, if the PSR needs to impose tougher remedies, it can make a market investigation reference to the Competition and Markets Authority to investigate a market.
As for the timing of these market studies, the PSR told the committee that these reviews usually take at least a year and can take longer. For the time being, the PSR has just published a draft of the market review and it is accepting comments on these terms of reference (ToR) until Aug. 2. Once the regulator receives comments from stakeholders, it will publish the final ToR for the market review in Autumn 2022.
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