UK Card Services Get A Closer Look From Regulators

The Payments Systems Regulator (PSR), Britain’s official payment watchdog group, has announced it will be reviewing banks that process card transactions on merchants’ behalf to evaluate whether customers are getting the best deal.

“Card payments are critical to the smooth running of the U.K. economy. They are a popular way for consumers to pay for goods and services, and their use is growing,” the PSR wrote in its blog post on the forthcoming review. “Stakeholders have raised concerns with us that indicate the supply of card-acquiring services may not be working well for merchants and, ultimately, consumers. Our market review is prompted by these concerns.”

Thus far, the PSR has published the draft terms it is taking to its review of the acquisition services market in the U.K., where most acquiring is done by big banks that charge merchants to accept cards and process payments for them. If banks are routinely overcharging for those services, the PSR noted, those costs will continue to trickle down to the consumers who will be shelling out for the chosen merchants’ banking services.

“The costs merchants incur for such services may ultimately be reflected in the prices they charge and services they offer to their customers,” the PSR said in a statement.

Acquirer fees in the U.K. are a complicated story (as they are in most of the rest of the world). According to UK Finance, a trade association representing the sector that spoke to Reuters, the fees merchants pay are negotiated directly with their services provider and vary based on a wide range of factors, including business type and transaction volume. The trade group further noted that it is not concerned about the investigation by the relevant regulator — given the importance of the market to the whole of the U.K. market.

“Card payments play a vital role in our economy, with card spending equivalent to about a third of the U.K.’s GDP,” UK Finance said. “It is understandable, therefore, that the PSR would want to review this important market. We will be responding in due course.”

The review being undertaken by the PSR will formally be of the fees that are charged to merchants (retailers) by acquirers such as Worldpay, Barclaycard and others. Part of that fee — the merchant charge rate — includes the interchange fee, though that is capped by EU regulations. The fee also includes profit for the acquirer (as it is allowed to make money on offering its services) and card scheme fees, which are both unregulated. The watchdog has powers to alter the sector’s structure if it finds those unregulated fees cause a net harm to customers.

James Lowman, CEO of the Association of Convenience Stores (ACS), noted that this review is the next logical and reasonable step forward in protecting businesses — particularly small business — from being routinely harmed by the necessity of accepting cards, despite the sometimes-high cost. The use of cards to buy goods and services became customers’ the most frequently-used payment method in the U.K. in 2017, according to Reuters.

Lowman noted to local media, “The cap on interchange fees for card transactions was a welcome step forward, but we remain concerned about whether this cap is being passed on to retailers, who also have to deal with the increasing cost of card scheme fees, which are unregulated. We welcome this review, and encourage the Payment Systems Regulator to look closely at all the fees paid by retailers to allow them to offer card payment facilities to their customers.”

The PSR is now taking public input on the proposed changes — that comment period will remain open until September of this year.

“The regulator wants to ensure that the supply of card-acquiring services is competitive and works in the interests of merchants and, ultimately, consumers,” the firm noted in Reuters.