Visa and Mastercard face regulatory crackdown over rising merchant fees

The UK’s payment systems regulator is targeting Visa and Mastercard in a bid to reduce their dominant market share and high merchant fees after a 30% increase in fees without improving services. With joint control of 95% of card transactions, both companies face new fines for fees that have increased by 30% with no sign of service improvement, prompting regulatory measures aimed at restoring transparency and fairness to the market.

To tackle rising merchant fees, the UK’s Payment Systems Regulator (PSR) has set its sights on Visa and Mastercard, two giants of the card payments industry. With both companies handling a staggering 95% of UK debit and credit card transactions, the regulations proposed by PSR aim to curb the runaway growth of program and processing fees.

This is a reaction to a significant, real increase in fees by 30% over the last five years, and this trend is not accompanied by an improvement in the quality of services, which raises concern and action.

Under the new rules proposed by PSR, Visa and Mastercard will be forced to provide a higher degree of transparency regarding fee structures. The regulator urges these card networks not only to regularly disclose financial information to the regulator, but also to consult with merchants and retailers before making any changes to fees.

Fee increases and service quality issues

PSR’s investigation found that Visa AND MasterCard significantly increased system and handling fees – in real terms by over 30% over five years. Despite higher costs for sellers, the quality of services did not improve proportionally, which the regulator noted. PSR managing director Chris Hemsley expressed concern, saying fare increases were not justified by improved services.

“Every time someone uses a Mastercard or Visa card, UK businesses have to pay fees. These fees have increased significantly in recent years and these increases cannot be explained by improvements in the quality of services. We also identified concerns about the transparency and quality of information available to business card service providers. Competition does not appear to be effective in protecting businesses. This leads us to the preliminary conclusion that the market is not functioning well,” Hemsley said.

This discrepancy between rising costs and stagnant service standards is currently the focus of PSR efforts to prevent dominant market participants from placing excessive financial burdens on sellers.

Economic impact and call for competition

The PSR proposals aim to break the dominance of Visa and Mastercard, which raises concerns about a lack of competition that could lead to higher costs for merchants and consumers. The regulator’s review highlights the need to create a more competitive market to prevent unilateral fee increases. Trade bodies such as the British Retail Consortium and the Federation of Small Businesses support the PSR’s position, advocating for reforms to bring more players into the market, reduce the financial burden on businesses and support a healthier economy.

The economic impact of Visa and Mastercard fee increases is significant for retailers. The UK retail consortium says these higher costs have resulted in an additional £250 million of burden on businesses. This burden is particularly acute for small retailers who are already struggling in a difficult economic situation. Tina McKenzie, policy chair of the Federation of Small Businesses, noted that card fees cut into profits on almost every sale.

Visa and Mastercard’s response

In the face of regulatory pressure, Visa and Mastercard defend their fee structures, saying fees fairly reflect the value their services provide to businesses and consumers by ensuring payment security and fraud protection.

A Visa spokesperson commented on Tuesday: “Visa fees reflect the tremendous value we provide to financial institutions, merchants and consumers, including extremely high levels of security, near-perfect operational resilience, and a broad range of consumer protections and high-quality products.” and services to serve the needs of consumers and traders.”

A Mastercard spokesman said it disagreed with the PSR’s findings and that the payments industry “has never been more competitive.”

“We will continue to engage with PSR in a transparent manner and demonstrate the significant value that Mastercard and electronic payments bring to the UK economy,” they added.

The broader regulatory landscape

The PSR actions against Visa and Mastercard are part of a broader regulatory effort to examine payment systems. PSR previously called for a cap on internet fees for cross-border transactions, which was abolished after Brexit.

In the UK, Mastercard is facing a class action lawsuit accusing consumers of paying excessive interchange fees. In the US, Visa and Mastercard settled a $30 billion antitrust lawsuit, agreeing to lower transaction fees.