Treasury Committee sheds light on increasing cost of card payments for retailers

The Commons Treasury Committee has Thursday published correspondence on the increasing cost of card payment services for businesses in the UK.

Responding to a letter from the Committee chair Mel Stride MP, the Payment Systems Regulator (PSR) said they have not seen evidence that the costs of operating payment services have increased for card issuers to warrant the recent increases in fees.

Stride has written to the PSR last month, noting retailers’ concerns about the cost of card payments.  The letter followed the decision in October by both Mastercard and Visa, who account for 99 per cent of all card transactions, to increase cross-border interchange fees for debit and credit card transactions, from 0.2 per cent to 0.3 per cent and 1.15 per cent to 1.5 per cent respectively.

Interchange fees are paid by businesses to card issuers each time a card is used by a consumer. Amazon has recently prevented consumers from paying with Visa credit cards as a result of the increased fees.

Scheme fees, which are paid by businesses to card payment operators for use of the service, have also risen substantially, with average fees more than doubling between 2014 and 2018.

“There have been significant increases in the fees businesses have to pay to use debit and credit card facilities in recent times. These impose an additional cost on businesses, many of whom are already hard pressed and facing financial difficulties due to the uncertainties of the pandemic,” Stride commented.

“Given that Visa and Mastercard currently dominate this space, it’s vital to ensure that there is sufficient regulation and competition in the market so that businesses are not subject to ever-increasing servicing costs.”

In the correspondence, the PSR said they would be willing to consider additional regulation if it becomes apparent that there are no real prospects of improving competition in the market. The regulator has also outlined their intention to finalise their strategy and publish a remedies consultation on their market review in January.

Responding, the Association of Convenience Stores (ACS) has welcomed the intervention by the Treasury Committee in the issue.

“We are pleased that the Treasury Committee has been examining the cost of card payments for businesses. These costs continue to increase for small businesses and ultimately impact consumer prices. The Payment Systems Regulator needs to go one step further and set out a timetable for how it is planning to review scheme fees to provide businesses with clarification,” James Lowman, ACS chief executive, said.

ACS’ most recent submission on the acquiring review recommends acquirers are required to provide all pricing information in an easily comparable format, contracts have compulsory end-dates, and measures to ensure payment terminal contracts do not unduly prevent switching activity.

Findings from ACS’ Voice of Local Shops Survey reveal that 61 per cent of independent and symbol retailers have not compared or switched acquirers in the past three years; and 48 per cent of retailers who have compared providers in the past three years did not choose to switch.

A consultation on proposals to improve the card acquirer market for small businesses is due in January. The Treasury Committee will be holding an accountability hearing with the leadership of the PSR on 9 March, which will explore the regulator’s role and success in promoting competition within the market and protecting consumers from rising prices.