UK Regulator Ready to Take on Visa/MasterCard Payment Networks
By Judie Rinearson and Kai Zhang
The UK Payment System Regulator (“PSR”), which is becoming increasingly assertive, issued on 21 June 2022 two consultations taking a closer look at the Visa and Mastercard “schemes” in the UK. The PSR proposes two market reviews: one into how Visa and Mastercard set the interchange fees; the other into how Visa and Mastercard set their scheme and processing fees. The market reviews will be conducted after the consultations close on 2 August 2022.
Review of interchange fees
This consultation looks at the interchange fees for UK-EEA cross-border card payments. Prior to Brexit (and from December 2015), interchange fees for EEA-issued consumer cards used within the EEA (which then included the UK) were subject to the statutory caps under the EU Interchange Fee Regulation 2015/751 (“IFR”). Further, Mastercard and Visa committed in 2019 to the European Commission that interchange fees for non-EEA issued cards used inside the EEA would also be subject to certain “voluntary” caps (which, for card-not-present payments, are much higher than the IFR caps). These Commitments are to expire in 2024.
Following Brexit, the EU IFR has been retained into UK law but applies only to UK domestic consumer card payments. For UK-EEA cross-border payments, UK-issued consumer cards used inside the EEA remain within the voluntary Commitments; but EEA-issued cards used in the UK are outside both the IFR and the Commitments. The PSR notes that there has been an increase in the interchange fees for UK-EEA consumer card-not-present transactions
The PSR wishes to understand the rationale behind the increase. It acknowledges that Visa and Mastercard has provided certain explanations but it wishes to “explore further the basis for [the increase]”.
Review of scheme and processing fees
This proposes to investigate the levels, structures and types of both the scheme fees (i.e. fees charged by the scheme in return for services) and the processing fees (i.e. fees charged by the scheme to issuer and acquirer for transaction processing including additional functions such as fraud checks).
The PSR notes that the scheme/processing fees have seen significant increases since 2014 and observes that these increases cannot be explained by changes in the volume, value or mix of transactions. That is cited as the primary reason for this proposed market review which will look at these fees and their changes from 2014 to the present. In particular, the review is to see if there are factors that mean that “Visa and Mastercard have market power and face weak constraints in setting [these] fees”.
It remains to be seen what outcome(s) the market reviews may bring. Read together with the FCA consultation/implementation of the new Consumer Duty regime (which sets fair value as an important outcome for consumers), it seems that more “price regulation” (or some form of it) may also be coming in the future.