On Tuesday 15 September 2020, the PSR presented its Interim Report with their conclusions thus far. They have requested that any comments on their findings and proposals are provided by 5pm on Tuesday 8 December 2020.
Interim Report – Summary of Key Findings
SMALL AND MEDIUM-SIZED MERCHANTS (ANNUAL CARD TURNOVER UP TO GBP10 MILLION)
The PSR found that the largest acquirers: (1) Barclaycard; (2) Elavon; (3) Global Payments; (4) Lloyds Bank Cardnet; (5) Worldpay (Largest Acquirers), and First Data dominate the market for the provision of card-acquiring services to small and medium-sized merchants of all sizes.
The following areas of concern were raised by the PSR for small and medium-sized merchants:
- Acquirer and ISO pricing – creates significant search costs for merchants due to the absence of published prices and the complexity of comparing prices;
- Indefinite duration of merchant contracts for card-acquiring services – fails to provide a clear trigger point for merchants to consider searching for another provider and switching; and
- Acquirer and ISO POS terminal contracts – long initial terms of three to five years and automatic renewal combined with a lack of parity in term length between contracts for card-acquiring services and POS terminals presents a barrier to switching to a different provider.
LARGE MERCHANTS (ANNUAL CARD TURNOVER OVER GBP10 MILLION)
The PSR found that the Largest Acquirers, Adyen, AIB Merchant Services and First Data dominate the market for the provision of card-acquiring services to large merchants, serving merchants who sell through multiple channels.
It was found that merchants with an annual card turnover above GBP50 million can access information about providers and assess their requirements and are therefore well served by card-acquiring services while merchants with an annual card turnover between GBP10 million and GBP50 million face the same restrictions as small and medium-sized merchants.
SCHEME FEES AND IFR SAVINGS
The PSR found that their current analysis indicates that, for merchants in all turnover groups, scheme fees paid by acquirers to Mastercard and Visa for scheme services were passed through by acquirers in full.
In respect of the available Interchange Fee Regulation (IFR) savings made by acquirers they found that the majority were passed through to merchants and that the estimated benefit of savings to these merchants was around GBP600 million in 2018. However, it should be noted that this was because merchants with interchange fee plus plus pricing received full pass through and they accounted for around 77% of the overall value of transactions in 2018.
Proposals
The following actions have been proposed to remedy the key issues identified above:
- Acquirer and ISO pricing – enabling or enhancing tools to facilitate price comparisons for merchants and requiring acquirers and ISO’s to provide pricing information in an easily comparable format;
- Indefinite duration of merchant contracts for card-acquiring services – all contracts for card-acquiring services having an end date; and
- Acquirer and ISO POS terminal contracts – limiting the length of POS terminal contracts; ending automatic renewal; and linking the contracts for card-acquiring services and POS terminals.
and then 