The UK’s Payments Regulator Calls out Visa and Mastercard for Fee Increases but Stops Short of any Real Action?
The UK’s PSR has just published its interim findings into Card Scheme Fees. Here’s a short summary and some context until I read in more detail…..
Visa and Mastercard started life as bank member-owned organisations. They existed to maintain interoperability and integrity in a system which balanced the needs of merchants, cardholders and issuing banks.
Fast-forward a few decades and Visa and Mastercard are now publicly listed companies. Though Visa Europe remained member-owned for a good while longer, it was bought by Visa Inc. in 2016. I remember the then-CEO of Visa saying at the time he saw an incredible opportunity to run Visa Europe “more as a commercial enterprise than a member-owned organisation”. In other words, they were going to increase scheme fees.
And they did, hence the PSR’s market review. It’s fairly damning for the card schemes, but anyone that works in payments won’t be surprised by a single word.
Historically the card schemes would compete to get issuing banks to issue their cards via higher interchange fees. This lever went away at the end of 2015 when such fees were regulated in Europe and UK.
Now the schemes compete for issuers by offering incentives on the scheme fees they pay. This means they had a hole to plug. Enter merchants… scheme revenues from the acquiring side – mostly paid by merchants – are up 30% in real terms over the last five years. Fees paid by merchants now make up 75% of the schemes’ revenues.
Additionally the British Retail Consortium reported that, in 2022, scheme fees were 27% higher, as a percentage of turnover, compared to 2021.
Visa and Mastercard’s EBIT margins are 64% and 53% respectively, whereas the PSR found that comparable companies operating in competitive markets have margins of just 12-18%.
There is also some really interesting commentary on the frustrations for acquirers, such as:
- “…billing information they receive is overly complex and lacks transparency… [acquirers] need to purchase additional consultancy services from the schemes in order to properly understand their fees”
- Some acquirers reported ‘accidental’ purchase of some services
- “…being unable to identify which merchants trigger [relevant behavioural fees] and therefore being unable to pass the relevant fee on to the specific merchant that triggered it. As a result, fees are passed through to the acquirers’ wider merchant base rather than those specific merchants incurring the fees.”
- Historical billing information – accessed via the schemes online portals – being deleted and not retained.
Unsurprisingly, the PSR has “provisionally” found that the card schemes do not face effective competitive constraints. They also noted that fee increases generally have little or no link to changes in service quality.
Disappointingly, all the PRS plans to do is require the card schemes to provide more detailed information on their UK operations, and to consult more broadly with users when they are introducing new or increased fees.
Steve Glover
Payments Project Lead
