The PSR publishes draft terms of reference in preparation for market review into card acquiring industry

By Adrian Calvo, Isabel Rodriguez, Trystan Tether, Guadalupe Sampedro, Scott McInnes, Paul Hermant, José Luis Lorente Howell, Shane Barber, Cathie Rosalie Joly, Dr Michael Jünemann, Pauline Kuipers, Stefano Febbi, Hans Svensson, Kristiina Lehvilä, Gabor Helembai, Alexander Shepherd, Ivan Sagál, Slawomir Szepietowski, Annette Nielsen, Gavin Punia


The Payment Systems Regulator (PSR) has published a draft terms of reference for a market review into the supply of card-acquiring services. Market reviews are one of the PSR's tools for investigating how well a given market is working for service-users in line with its statutory objectives.

As the UK moves towards an increasingly cashless society, retailers/merchants are invariably becoming more reliant on payment service providers to process payments and the PSR has identified a need to investigate the market of card-acquiring services, investigating competition among merchant acquirers and fees being charged to merchants and consumers. The PSR is concerned that some retailers, "are suffering significant harm because competition in the supply of card-acquiring services is not working well."

The primary issue identified by the PSR is in relation to the interchange fee caps introduced by the EU Interchange Fee Regulation (IFR). Under the IFR, interchange fees for card payments have been capped at 0.3% for consumer credit cards, and 0.2% for consumer debit and prepaid cards. The PSR is however concerned that acquirers "have not passed on to smaller merchants the savings they made," possibly indicating a lack of competition in the industry. 

The PSR will also investigate whether there is a lack of transparency around the fees merchants pay to accept card payments, the evolution of scheme fees that acquirers payd to card schemes and whether they favour larger acquirers, whether merchants face certain barriers in switching from one acquirer to another, the alternatives that merchants have to card-based payments, etc.

The PSR therefore hopes to gain a better understanding of how the supply of card-acquiring services is working for merchants, and ultimately consumers, by examining how competition in the supply of the service operates. 

The market review will focus its attention on the supply of card acquirers and payment facilitators. 

Acknowledging that there are a number of ancillary issues that may be relevant, the PSR has decided to narrow the scope to three specific areas based on its research and analysis so far. These are:

  1. How merchants choose between providers of card-acquirers, to better understand the barriers merchants face when switching card-acquiring service providers;
  2. If there are any factors that prevent certain services, which help facilitate and ease the process of merchant decision making, from emerging or growing; 
  3. If there are any barriers to entry for new card-acquiring services to enter the market, or for existing card-acquirers to expand.

Following the outcome of these three areas of review, the PSR will then consider what actions, if any, should be taken. Potential actions cited by the PSR include making a market investigation reference to the Competition and Markets Authority, a new regulation aimed at the entire market or certain providers, publishing guidance, making requirements to change rules, or making proposals to the Financial Conduct Authority (FCA) or industry for further action.

The PSR has invited feedback from businesses and stakeholders to answer a number of outstanding questions over the proposals for the review. Comments are to be collected until 14 September 2018 whilst the PSR continues to liaise with key stakeholders and regulatory bodies, such as the FCA.

The PSR aims to publish a final Terms of Reference for the market review before the end of 2018.

If you have any questions, please do not hesitate to get in touch with any member of the Bird & Bird international payments team - see the contacts below.