PSR publishes stakeholder submissions on card schemes and processing fees

The PSR has published the stakeholder submissions to its 2023 working paper on changes to card schemes and processing fees.

Earlier this year, the PSR published its provisional findings on competition in the card schemes sector, highlighting concerns that the supply of scheme and processing activities is not working well, and that there is no effective competition that would prevent Mastercard and Visa from raising prices. The interim report set out some suggested potential remedies, including greater transparency, and obligations on Mastercard and Visa to explain, consult on or document reasons for price changes. The PSR sought feedback on the interim report until 30 July 2024.

The PSR has now published stakeholder submissions to its initial working paper, including from the two largest providers.

Mastercard’s response argued:

• that the working paper failed to reflect how its business works, and presented an incomplete view of its pricing process which underemphasised the “extensive, cross-departmental and cross-divisional internal deliberation” that occurs before a formal fee change proposal is presented to final decision makers. Mastercard noted that internal discussions:
  • involve representatives who have day-to-day interactions with customers, and that this formed an important channel for customer views and market intelligence to be fed into decision-making; and
  • often have tangible impacts on pricing proposals, reflecting the competitive constraints faced by the business; and
• that the working paper analysis employed non-robust and inappropriate methodologies to draw generalised and inaccurate conclusions, including by using a non-representative sample of Mastercard’s fee changes which accounted for less than 1% of the pricing documents submitted.

Visa’s response noted:

• as the working paper focused on internal governance documentation only, and itself acknowledges some inherent limitations to its exercise, PSR’s central observation that competition “does not appear to have been an impediment to implementing material increases to mandatory fees” was overly broad and did not accurately describe how competition influenced Visa’s decisions to introduce fee changes; and
• it did not agree with the PSR’s assessment of the rationale(s) for its fee changes. Among other things, the PSR’s analysis did not account for the important link between rationales other than competition, and the commercial landscape Visa operates in. It gave the example of behavioural fees designed to encourage behaviours to improve the security, integrity and efficiency of the overall payments ecosystem.

The PSR’s final report is expected in Q4 2024.