UK Payments Regulator Seeks More Transparency in Card-Acquiring Market

The U.K. Payment Systems Regulator (PSR) published a public consultation on January 26 in which it considers applying four potential remedies 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.

“More can be done to make comparisons easier, which will help merchants consider their supply options more frequently, shop around, and potentially make savings. In turn, this is good for their customers, who may also see the benefit of those savings,” said Genevieve Marjoribanks, Head of Policy at the PSR.

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 publishing prices in a market where only a few companies control the majority of the market could cause an alignment of prices or even an increase in prices by some of the companies. 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 regulator doesn’t specify what type of remedy could address this issue, but probably a removal of these type of clauses in the lease agreements could be the way forward.

It is worth noting that the proposed remedies do not target card fee levels or the adequacy of any fee, even though the regulator examined in the same report a recent increase in scheme fees. The regulator’s strategy to deal with potential increases in fees is not to introduce new caps or specific regulation, but to promote account-to-account payments as an alternative to card payments.

Read More: UK’s Payment Regulator Prioritizes Direct Payments in Strategic Plan

The U.K. regulator acknowledged the role of card-acquiring services for the economy, and this series of remedies seeks to strike the right balance between increasing transparency and competition without imposing unnecessary hurdles to the development of this sector.

“Cards have continued to be the payment method of choice for the majority of consumers, with 15.5 billion debit card payments made in 2021. The role card-acquiring services play is vital in enabling merchants to accept these card payments,” said Marjoribanks.

The PSR will continue seeking feedback on these proposed remedies from stakeholders until April 6. After that, it will decide whether these remedies are the best way to address the features of concern, or if other intervention is needed.