Payment Systems Regulator launches consultation on new rules for Card Acquiring Services

On 26 January 2022, the Payment Systems Regulator (PSR) published Consultation Paper 22/1 on proposed remedies to address the areas of concern in the card acquiring market (CP 22/1), particularly in respect of SME merchants (with a turnover of up to GBP50 million a year).

CP 22/1 follows the publication by the PSR of its final report on its market review into the supply of card-acquiring services. We have previously summarised this final report on FinBrief.

In CP 22/1, the PSR is proposing four remedies to ensure that  merchants  when using card acquiring services have:

• Greater transparency to help merchants understand pricing elements and make purchasing decisions;
• Access to comparison tools such as price comparison websites;
• Greater engagement to help merchants when their contracts are due for renewal; and
• Ability to change providers easily.

Purpose of these remedies

Every time somebody makes card payment, the merchant uses card acquiring services to accept that payment. According to UK Finance, in 2020 there were 157 million cards issued in the UK and consumers made 15.5 billion debit card payments.

The PSR focus is on making card acquiring services work well for merchants (particularly merchants with lower turnovers and amongst them, SMEs) and ultimately for consumers.

Market review into the supply of card-acquiring services

In its final report on its Market Review, the PSR concluded that the supply of card-acquiring services does not work well for merchants with turnover up to GBP50 million per annual for the following three reasons:

• Acquirers of card transactions and independent sales organisations (ISOs) do not typically publish their prices for card-acquiring services. This makes it difficult for merchants to compare prices;
• The indefinite duration of acquirer and payment facilitator contracts for card-acquiring services may be relevant to merchants not considering switching or searching for alternative providers regularly;
• Point of Sale (POS) Terminals and POS terminal contracts prevent or discourage merchants from searching and switching providers of card acquiring services. This may occur because a merchant cannot use their existing POS terminal with a new card acquirer and/or the merchant may incur a significant early termination fee when cancelling their terminal contract.

Remedies under consideration

In CP 22/1, the PSR states that it is considering the following 4 remedies and is seeking feedback from industry on their need and effectiveness.

The PSR also confirmed that it will not be pursuing direct intervention in the pricing structures of card-acquiring service providers or the imposition of mandatory fixed-term card-acquiring contracts as previously contemplated in the final report of the Market Review.

1. Summary Information Boxes

The PSR is proposing the introduction of summary information boxes which display both price and non-price factors in a standardised format.   There will be bespoke and generic boxes.

• Bespoke summary boxes would be provided by acquirers and ISOs to each of their merchant customers and would contain tailored information about pricing and options to migrate to other tariffs or switch providers;
• Generic summary boxes would be provided to all customers and potential customers on acquirer and ISO websites. This would enable merchants to quickly assess pricing and service options across a range of acquirers.

In CP 22/1, the PSR note that summary information boxes have led to better outcomes in other sectors, for example key fact illustrations for mortgage providers and key information documents for packaged retail investment and insurance products.

2. Stimulating Digital Comparison Tools (DCTs) for merchants

Like summary information boxes, DCTs have the potential to provide merchants with comparable information on price and other service elements in one place which should enable merchants to shop around for card-acquiring services.

DCTs are not well established in the card-acquiring market. The market itself makes it difficult for DCTs to operate, for example due to pricing structures varying significantly between providers.

Whilst the PSR does not propose to directly intervene in pricing structures of card-acquiring service providers, it is considering measures  to improve the availability and accessibility of card-acquirer and ISO pricing information to third party intermediaries. This may involve:

• Provision of pricing and other comparable service information to DCTs by providers of card-acquiring services to enable the creation of price comparison tools;
• Collation and presentation of comparative pricing and other service data updated regularly in formats which are easily usable by DCTs; and/or
• Enabling merchants to share their acquirer transaction data with third parties so this can be used by DCTs to assess merchant options, where merchants want to do this and have consented to it.

3. Trigger Messages

In CP 22/1, the PSR suggests that merchant search and switch activity could be improved if card-acquirers provide information to them at specified times to trigger or prompt engagement. Switching can lead to both price and non-price outcomes, for example improved quality of service and customer support.

The PSR is seeking industry views on the timing, content, and method of delivering trigger messages.   

Trigger messages used in energy markets, for electronic communications and for pay-TV providers as well as for current accounts and home insurance policies suggest to the PSR that these messages would be helpful to small and medium-sized merchants purchasing card-acquiring services. 

4. Addressing Barriers to switching between card-acquiring services which arise from POS terminal leases

In CP 22/1, the PSR state that it may be necessary to address barriers to switching directly – for example by introducing a prohibition on contract roll-overs if they were found to be preventing merchants from switching between card-acquiring services.

At this stage, however, the PSR is focusing on addressing technical barriers to switching POS terminals. For example, current industry practice makes terminal porting difficult for a number of reasons including:

• Physical reconfiguration of terminals is required for them to work with a new card-acquiring service; and/or
• Terminals require certification by each card-acquirer for each payment scheme they operate. Also, use of a terminal with a new card-acquirer must be covered by an existing or new certification.

Examples of technical solutions which could fully or partly address this concern are:

• Replacement of terminals by POS terminal lease providers to support merchants switching between card-acquiring services;
• Portability of POS terminals when a merchant switches between card-acquiring services. The PSR committed to consider common interoperability standards to support this.

Consultation Next Steps  

The deadline to responses to CP 22/1 is 5pm on 6 April 2022.

After the consultation, the PSR will consider the information submitted and publish a provisional decision which will include draft remedies.