Companies operating in the UK are set to get improved transparency around card payment fees, following draft guidancepublished today by the Payment Systems Regulator (PSR).
The draft guidance sets out how the regulator will monitor and enforce newer elements of the EU Interchange Fee Regulation (IFR) which come into effect in June this year(1). It explains that acquirers – companies that process card transactions on behalf of merchants – must clarify what costs make up the fee for each transaction, known as the Merchant Service Charge (MSC).
The MSC essentially packages up several costs charged for each card transaction and passes them onto the merchant in one fee. However, acquirers are not currently required to explain to a merchant what makes up this charge.
Hannah Nixon, Managing Director of the PSR, said:
“The lack of clarity as to what is included in the merchant service charge means that companies find it harder to negotiate on fees and are less likely to see reduced costs passed on to them. In turn, merchants cannot then pass these savings to their customers.”
Today’s draft guidance follows the PSR’s final guidance on the first phase of IFR that were in force by December 2015.(2)Interchange fees charged by UK card schemes (for example, MasterCard and Visa) are now capped in the UK at 0.2% for debit cards, and 0.3% for credit cards (find out more here).
Traditionally the merchant’s acquirer then passes the cost of the interchange fee on to the merchant as part of the MSC. The new cap means that the average credit card interchange fee has fallen by around 70%.
Hannah Nixon, continued:
“The interchange fee is only part of what makes up the Merchant Service Charge but we are still being asked by merchants why they are not seeing the cut in the interchange fee being passed on.
“It is up to the individual companies to negotiate on the merchant service charge rate, but we would still expect that acquirers pass on reduced costs to merchants and, in turn, that these are then passed onto consumers.
“The new transparency should allow merchants more clarity when negotiating fees. However, if merchants remain unhappy they should contact their acquirer and consider shopping around to get a better rate.”
Today’s draft guidance also considers the approach to co-badged cards (cards, popular on mainland Europe, that have two or more payment options on the same card) and requirement for electronic and visual identification on all credit and debit cards.
In addition, the draft guidance also explains that all retailers clearly identify at the shop entrance and point of sale which credit and debit cards they accept, in order to give increased clarity to customers.
Today’s draft guidance on the IFR can be found on the PSR website here. The PSR is requesting feedback on the consultation to be submitted by 5.00pm on Friday 8 July 2016.
Background
- The Treasury confirmed the PSR as lead UK regulator for the IFR on 17 November 2015.
- The Treasury has set fee caps for credit and debit card transactions in the UK. There will be a cap of 0.3% for credit card transactions. For UK debit card transactions the Treasury has chosen a weighted average of 0.2%, meaning the cap will be 0.2% of the average value of all UK debit card transactions from the previous year. The Treasury will keep the level of the caps under review, with support from the PSR and the other relevant UK regulators as required.
- The PSR was incorporated on 1 April 2014 and became fully operational on 1 April 2015.
- The PSR is the regulator and concurrent competition authority for payment systems in the UK and all participants in payment systems (payment service providers, operators and infrastructure providers to those payment systems).
- The PSR website.
