UK payments regulator proposes three new measures to promote competition in the SME card-acquiring market

The UK’s Payment Systems Regulator has published an interim report on its review into the supply of card-acquiring services and is consulting on its findings and proposed remedies. Notably, it has suggested three new measures to help small and medium sized merchants benefit from competitive pricing for acquiring services. These include restrictions around the contracts for card-acquiring services and point-of-sale terminals as well as measures to facilitate price comparison. The consultation closes in December.

Market review into the supply of card-acquiring services

The UK’s Payment Systems Regulator is undertaking a market review into the supply of card-acquiring services, i.e. services which merchants buy in order to accept card payments. Among other things, it considered the competitiveness of the market and the impact of the Interchange Fee Regulation on the aggregate fees charged to merchants. 

The PSR has now published its interim report, which concludes that:

  • The market works well for the largest merchants with an annual card turnover above £50m. This accounted for around 77% of the overall value of transactions in 2018.
  • It works less well for small and medium merchants. Whilst new service providers have entered the SME market, there remain certain barriers to merchants switching providers and/or negotiating better deals.

The report proposes new measures to tackle those barriers, as discussed below. 

Who are the providers of card-acquiring services?

The report distinguishes between two categories of card-acquiring service providers:

  • acquirers (which are directly licensed by the card schemes); and
  • payment facilitators (a growing group of intermediaries which access the card systems via acquirers).  

It identifies that the five largest acquirers are Barclaycard, Elavon, Global Payments, Lloyds Bank Cardnet and Worldpay and the largest payment facilitators are PayPal, Square and SumUp. 

It identifies that ISOs (Independent Sales Organisations) are also an important channel for onboarding smaller merchants. ISOs do not provide card-acquiring services themselves, but instead sell services on behalf of acquirers.

Proposed new measures

The PSR is considering the following measures to help smaller merchants benefit from competitively priced card-acquiring services.

  • Requiring contracts for card-acquiring services to have an end date. This is designed to encourage merchants to shop around more regularly. It would not apply to contracts with large merchants with an annual card turnover above £50 million.
  • Measures to prevent POS (point of sale) terminal contracts from acting as a barrier to switching service providers. This may include term limits on POS terminal contracts, restrictions on auto-renewals for successive fixed terms, and measures to link the contracts for card-acquiring services and POS terminals where they are sold together as a package. 
  • Measures to make it easier for merchants to research and compare prices. For example, requiring acquirers and ISOs to provide pricing information in an easily comparable format.
The view from the EU

The European Commission has also been monitoring this market and recently published its report on the application of the Interchange Fee Regulation. It concluded that “major positive results” had been achieved through the IFR including reduced merchants’ charges, but also flagged that further data-gathering and monitoring would be required in some areas. See our previous blogpost for more.

What happens next?

The interim report is open for public consultation until 8 December 2020 and is due to be finalised in 2021. Once final, the PSR expects to carry out more detailed work to determine the most effective way to design and implement any new measures.