On 24 January 2019, the Payment Systems Regulator (PSR) published the final Terms of Reference of its market review MR18/1.2 into the supply of card-acquiring services (ToR). This follows a consultation on the draft terms of reference in July 2018. You can find DLA Piper’s summary and commentary on the consultation here.

Background and objectives

The PSR, using its competition powers, is seeking to assess whether the market for card-acquiring services functions well for UK merchants and consumers. The ToR note that the review will take place in the context of the increasing popularity of card payments, with debit cards having overtaken cash as the most frequently used payment method for the first time in 2017. Merchants that wish to accept and process card payments need to buy card-acquiring services either from acquirers or from payment facilitators. In the course of the consultation, stakeholders expressed concerns that the fees merchants pay for these services are not sufficiently transparent and that barriers exist making it difficult for merchants to compare and switch acquirers.

Additionally, the PSR is concerned that the benefits that the Interchange Fee Regulation (IFR) aimed to produce are not being reflected in the market. The IFR introduced caps on the interchange fees that acquirers pay to issuers on certain consumer debit and credit card transactions, with a view to ultimately reducing costs for merchants. However, the feedback received indicates that these savings have not been passed on to smaller merchants as intended.

The market review

The PSR will assess how competition works in the market for card-acquiring services by looking into a wide range of market participants including acquirers and payment facilitators, card scheme operators, merchants as well as third-party providers of card acceptance products. The market review will be focusing on Mastercard and Visa, due to their large market share, although other card scheme systems will remain in scope.

In particular, according the ToR specific areas of interest include:

  • examining potential barriers to entry or expansion in card-acquiring services, for instance by assessing whether scheme fees and rules set by card scheme operators create or exacerbate such barriers;
  • looking at barriers that merchants face to searching or switching, while taking into consideration existing regulatory obligations on acquirers or payment facilitators to provide information to merchants about their services; and
  • assessing the availability of services that facilitate merchant decision-making, including any restrictions on independent sales organisations that could prevent them from assisting merchants in making better choices.

This market review may result in several possible actions, ranging from amending existing general directions to making a proposal to the Competition and Markets Authority (CMA) to undertake a market investigation. As per the next steps listed in the terms of reference, the PSR plans to publish a its interim report in Q4 2019 and a final report in Q2 2020.