Payment Systems Regulator announces market review

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On Tuesday 24 July the Payment Systems Regulator announced that it is to carry out a market review into the supply of card-acquiring services in the UK.

The PSR has published draft terms of reference for the review on its website and is seeking comments by 14 September 2018. It is anticipated that the final terms of reference for the market review will be published by the end of 2018.

The PSR states that it is undertaking the market review in response to concerns in relation to the card payments industry and, in particular, a concern that the supply of card-acquiring services is not working well for merchants and therefore consumers. The PSR has identified the following:

  • Acquirers have not passed on the savings they have made from the interchange fee caps introduced by the Interchange Fee Regulation to smaller merchants
  • A perceived lack of transparency around the fees merchants pay to accept card payments
  • Barriers that exist, making it hard for merchants to compare and switch between acquirers
  • The existence of barriers to offering services that would help merchants to compare between and switch acquirers
  • That the card schemes’ fees favour larger acquirers
  • That the card scheme fee portion of the fees merchants pay to acquirers is increasing significantly

The PSR has indicated that it is specifically interested in:

  1. Barriers to entry or expansion in card-acquiring services
  2. Barriers to switching or searching that merchants face
  3. The availability of services that facilitate merchants’ decision making

It seems likely that the PSR’s review will be conducted during the course of 2019. The PSR is carrying out the market review using its general powers under the Financial Services (Banking Reform) Act 2013 and has indicated that it will take action should it identify detriments to service users. Such action could include the making/amending of directions, publishing guidance, putting proposals to the Financial Conduct Authority for greater regulation of the industry, or a making a referral to the Competition and Markets Authority for further investigation.

Our thoughts

"It is essential that the acquiring community participates in the consultation, including at this early stage"

This is the third market review carried out by the PSR since it was launched in April 2015, the prior reviews being in relation to ‘The ownership and competitiveness of infrastructure provision’ and into ‘The supply of indirect access to payments systems’. It is essential that the acquiring community participates in the consultation, including at this early stage setting the terms of reference, as the regulators of payment services in the UK (historically the FSA and now the FCA) and elsewhere have not had an impressive track record of demonstrating a complete understanding of how merchant acquiring actually works.

The PSR has explained that its focus will be the operation of acquirers and payment facilitator’s role in the system. Please see an extract from the PSR’s Draft Terms of Reference – July 2018.

There is a danger that the PSR’s review focuses on acquiring only and could fail to properly take into the account the complexity in the market and the importance of players in the wider community of payment services providers and aggregation providers who have a significant impact on pricing, the transparency of pricing and innovation in the market.