UK Payment Systems Regulator to Review Card-acquiring Services

What happened?

On 24 July 2018, the UK Payment Systems Regulator (PSR) announced its intention to conduct a market review into card-acquiring services in the UK. The review could involve significant consequences for UK payment card schemes and acquirers in terms of regulatory changes and antitrust sanctions.

The market review follows complaints to the payments watchdog by various stakeholders, including merchants whose businesses rely on acquirers and payment facilitators to accept card payments. The PSR’s initial concerns include acquirers failing to pass on to merchants savings resulting from fee caps introduced by the EU’s Interchange Fee Regulation, as well as scheme fees and rules that favour larger acquirers. More generally, the PSR is concerned about a lack of transparency around acquiring fees paid by merchants and about potential barriers that make it more difficult for merchants to compare and switch between acquirers.

According to the PSR’s draft terms of reference, the market review will focus on card-acquiring services by acquirers and payment facilitators in relation to MasterCard and Visa, since the two schemes accounted for over 98% of all UK debit and credit card payments in 2017.  It will also consider card-acquiring services for other card payment systems operating in the UK.

This will be the PSR’s third market review, following previous probes into ownership and competitiveness of payments infrastructures and indirect access to payment systems.

Why does this matter?

The PSR’s market review involves potentially significant consequences for card schemes and acquirers in the UK, including new rules and additional antitrust scrutiny.

Should the market review confirm the PSR’s initial concerns and point towards market failure as the cause, the regulator has significant powers at its disposal to impose remedies. For example, if it considers it appropriate, the PSR could set the fees that acquirers may charge merchants, require divestments to remove barriers to entry or switching, or impose changes to scheme fees or rules to ensure that smaller acquirers are not disadvantaged.

Furthermore, should the PSR suspect collusion is to blame for a lack of price competition on acquiring fees, it could initiate an antitrust investigation alone, or in conjunction with the Competition and Markets Authority (CMA). Indeed, the PSR has begun to exercise its antitrust enforcement powers in recent months: earlier this year, the PSR announced that it had opened its first antitrust case following dawn raids at a number of locations across the UK.

The PSR could also ask the CMA to investigate card-acquiring services (or aspects thereof) or to investigate specific companies suspected of misconduct.

An antitrust investigation by the PSR or CMA could ultimately expose card schemes and acquirers in the UK to sanctions including potentially significant fines. A finding that antitrust principles were breached could subsequently lead to damages claims. For example, MasterCard and Visa remain under investigation by the European Commission and continue to face dozens of UK claims regarding the level at which the schemes had set their interchange fees.

What happens next?

The PSR is currently consulting on the scope of the market review (until 14 September 2018) and plans to publish the final terms of reference before the end of 2018.

Once the market review is launched, the PSR will engage with relevant stakeholders, collect data and carry out market research before publishing its findings and proposed solutions in an interim report.

The PSR generally publishes its final report within a year of launching a market review. This final report can be followed, where appropriate, by a consultation on remedies.

How can Cadwalader help?

Cadwalader’s antitrust team is one of only a few to focus on the financial services sector. We regularly represent companies before the EU, UK and US antitrust authorities, and are specialists in offering ‘end-to-end’ advice on antitrust investigations and related litigation in this sector, working closely with our financial regulatory and white collar colleagues. 

If you would like to discuss the issues arising in this alert, or how we can help you more generally, please contact Vincent Brophy and Tom Bainbridge.

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