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UK Payment Regulator Faults Visa and Mastercard for Fee Hikes

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The UK's payments regulator has raised concerns about sharp increases in fees charged by Visa and MasterCard to retailers, highlighting a lack of competitiveness in the payment card market, Reuters reported. Despite the significant increase in fees, there is little evidence that these costs have led to improved services. Consequently, the Payment Systems Regulatory Authority (PSR) has proposed new measures to enhance transparency and competition.

Cost to UK businesses

Visa and Mastercard dominate the UK payment card market, a situation that has led to increased scrutiny from lawmakers. Recent findings from PSR indicate that over the past five years, fees charged by these two companies have increased by more than 30% after accounting for changes in transaction volume. Despite these increases, service quality has not shown a similar improvement.

In 2022, card transactions in Britain totaled 27.1 billion, worth £954 billion. The PSR's interim report estimates that the rise in fees has added more than £250 million a year to the cost of doing business in the UK. Since MasterCard and Visa account for 95% of card transactions issued in the UK, businesses have no choice but to bear these additional expenses, which are often passed on to consumers through higher prices for goods and services.

The PSR report highlighted the lack of effective competition, which allowed Visa and Mastercard to raise prices unchecked. However, Visa defended its fees by pointing to the high value it offers through security and operational flexibility. Likewise, Mastercard disputed the overall performance report's findings, arguing that the payments industry is highly competitive, with many choices available to consumers.

To address these issues, the PSR has proposed several solutions for public consultation. This includes enhancing user transparency and requiring MasterCard and Visa to explain and document the reasons behind price changes. The PSR also proposed more detailed reporting of financial information to improve oversight of companies' operations in the UK.

Settlement audit

The public consultation period is open until 30 July. The PSR is expected to release a final report on card schemes and processing fees in the fourth quarter of the year. If the final report supports the interim findings, the PSR will consult on the implementation of the proposed remedies to ensure the market functions more effectively for businesses and consumers.

Meanwhile, the National Retail Federation (NRF) recently objected to a settlement between Visa, Mastercard and merchants regarding swipe fees. Despite promises to reduce fees and cap them over five years, the NRF believes the settlement is insufficient to address traders' long-standing complaints.

The NRF expressed its dissatisfaction with the settlement, stressing that the proposed relief measures are minimal and temporary. The pledge to reduce transaction fees by four basis points for three years and average overall rates by seven basis points for five years falls short of the NRF's expectations for real relief.

This article was written by Jared Kirroy at www.financemagnates.com.

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