Card acquiring services: UK Payment Systems Regulator launches its market review

The UK Payment Systems Regulator (PSR) has kicked off its market review into card-acquiring services with the publication of its final terms of reference (ToR). For affected firms, proactive engagement with the PSR is vital; the potential outcomes could be transformative, leaving a lasting impact on acquirers' business models.

Publication of the final ToR follows the PSR's consultation on the draft version published in July 2018, as considered in our previous blog.

What's changed from the draft ToR?

The Final ToR is broadly similar to the draft published in July, but the PSR has made some changes based on the feedback gathered during its consultation.

Expansion of review

The PSR has expanded on the matters that it intends to examine, which now also include:

  • How the supply of card-acquiring services may differ across broad types of merchants.
  • The fees merchants pay for card-acquiring services including how the level of these fees has responded to changes in the fees acquirers pay to card scheme operators (scheme fees) and card issuers (interchange fees).
  • What support merchants receive from their acquirer or payment facilitator to comply with the rules set by the card scheme operators (including PCI DSS requirements), and any fees or fines associated with such compliance.
  • The quality of service that merchants receive from their provider of card-acquiring services – including how quickly they receive the funds paid by customers using cards, the resilience of the services and the support provided where there are issues accepting card payments.

The PSR had previously indicated that it would be examining how providers of card-acquiring services compete for merchants, but will now also do so in relation to goods and services that are tied to or bundled together with the supply of card-acquiring services. This is in response to feedback from some respondents who argued that the PSR would not be able to understand the supply of card-acquiring services in isolation.

Card payment systems other than Visa and MasterCard

Still a (non-exclusive) focus on Visa and Mastercard…

The PSR has reiterated that its review will focus (non-exclusively) on Visa and MasterCard, in light of Mastercard-branded cards and Visa-branded cards accounted for over 98% of all UK debit and credit card payments in 2017, both by volume and value.

…but PSR also open to feedback on other payment systems

However, the final ToR confirms that the PSR will look at card-acquiring services in relation to other payment systems, initially to understand how card-acquiring services for other card payment systems compete with card-acquiring services for Mastercard and Visa, respectively. The PSR has stated that it is open to exploring any concerns it hears in relation to card-acquiring services for card payment systems other than Mastercard and Visa and, depending on feedback, could adapt (and presumably expand the stated scope of) its proposed approach.

Market participants

The PSR has confirmed that, for the purposes of the market review, the relevant market participants will include:

  • Acquirers and payment facilitators;
  • Card scheme operators;
  • Merchants; and
  • Third-party providers of card acceptance products (that is, providers that do not also supply card-acquiring services).

Importantly, the PSR's specific areas of interest – namely, barriers to entry or expansion in card-acquiring services, barriers to searching or switching that merchants face and the availability of services that facilitate merchant decision-making – all remain unchanged, as well as the range of possible measures the PSR might take following the market review.

What's next?

The publication of the final ToR marks the official launch of the PSR's market review.

Interim report due Q4 2019

The PSR plans to publish a report setting out its interim conclusions on the supply of card-acquiring services in Q4 2019 and a final report in Q2 2020.

Information gathering from stakeholders

To do so, it will begin gathering evidence and information from a range of stakeholders using a variety of methods, including issuing information requests, carrying out merchant surveys and holding meetings.

Methodology or approach papers due Q1 and Q2 2019

The PSR also intends to seek views at an early stage on some of the analysis it proposes to carry out and plans to publish methodology or approach papers in Q1 and Q2 2019 covering:

  • its proposed methodology for assessing how the level of fees that merchants pay have responded to changes in the fees that acquirers pay to card scheme operators and card issuers (the pass-through analysis);
  • its proposed approach to carrying out the survey of merchants; and
  • its proposed methodology for assessing the profitability of a subset of acquirers.

The PSR also welcomes firms to provide views and evidence to help inform its assessment.

What does it mean for you?

Potentially transformative outcomes

As noted in our previous blog, the potential outcomes of the market review could be transformative, and could have a lasting impact on the way that acquirers (and other market participants) do business.

Proactive engagement is essential

Given the wide scope of the review, and the range of powers available to the PSR to effect changes to the market, it is vital to take the opportunity to proactively engage during each step of the PSR's market review.

Think about what issues (and solutions) to bring to PSR's attention

In particular, firms should be ready to respond to any information requests they might receive, with a clear view on the issues they wish to bring to the PSR's attention and potential solutions. To do so, firms should proactively review their activities in this space and begin to map out possible opportunities as well as areas of potential challenge.

Hogan Lovells is here to help

Please contact us if you would like to discuss the particular impacts on your business and how we can help you.

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