The U.K. Payment Systems Regulator on Wednesday (April 6) will close a public consultation on the potential remedies that it considers applying in the card-acquiring market.
This public consultation on potential remedies stems from the PSR’s review of the card-acquiring market, published in November, where the regulator found that small and medium-sized merchants could benefit by shopping around or negotiating with their current card-acquiring supplier.
The market under scrutiny here is “acquiring services,” where the five biggest companies in the U.K. are Barclaycard, Elavon, Lloyds Bank Cardnet, Global Payments and Worldpay. These companies allow merchants to accept card payments from customers. In turn, the acquirers pay fees to international card payment systems such as Visa and Mastercard.
The four remedies focus on two principles: more transparency in prices to allow greater comparison of acquiring service providers, and eliminating some barriers, in the form of contract restrictions, to allow merchants to switch suppliers easily.
The first remedy suggests requiring card acquirers to provide summary information boxes setting out key price and non-price service elements of card-acquiring services. This remedy can be very useful for merchants to compare providers, but the regulator will need to assess which information is made public as an excess of transparency in a market where only a few companies control most of it could reduce, rather than enhance, competition. This remedy is similar to one adopted by the Financial Conduct Authority in the asset management sector, where the regulator required the three biggest firms to offer more detailed information to their customers.
The second remedy does not really depend on the regulator. The PSR hopes that by making the market more transparent, the industry will stimulate digital comparison tools, like price comparison websites, to allow merchants to get the best deal.
The last two remedies tackle potential barriers to switching between card-acquiring services. According to the regulator, when merchants want to change providers, they may need new point-of-sale (POS) terminals and incur significant early termination fees to cancel the existing POS terminal contract. The proposed remedies include triggering messages sent at the end of the initial contract period and annually afterwards to switch suppliers and to ensure that contracts aren’t a barrier to switching, which may suggest a removal of certain clauses in the lease agreements could be the way forward.
If the regulator decides to impose these or other remedies, it won’t be in April after closing the consultation. After assessing the responses, the PSR will issue a provisional decision also for consultation. Then, it will issue a remedy notice with the final measures to adopt. It is in this final notice where the regulator will include information on the implementation periods for any changes, which may or may not be from the moment of the publication. The regulator expects to have a final position by the end of 2022 and any remedy may be implemented in 2023.
It is worth noting that the proposed remedies do not target card fee levels or the adequacy of any fee. But in an interview with PYMNTS, Andrew Self, senior policy manager at the PSR, said the investigation also revealed that scheme fees have increased over the years, as well as cross-border interchange fees. For the PSR, “these developments pose important questions around whether there are sufficient competitive constraints on card schemes.”
For the time being, the regulator’s strategy to deal with potential increases in fees is not to introduce new caps or specific regulations, but to promote account-to-account payments as an alternative to card payments.