Retailers Call For Action On Accelerating Scheme Fee Hikes

An influential UK retail group has said that fees set by Visa and Mastercard increased by 43 percent in the last year, prompting calls for regulatory reforms aimed at lowering the cost of card acceptance.

The British Retail Consortium (BRC), an industry association that represents more than two thirds of the UK’s retail industry by turnover, made the claims in its most recent annual survey of members.

“The cost to the retail industry of processing card transactions remains very high, accounting for 59 percent of all retail transactions but 83 percent of retailers’ costs for accepting payments,” the survey said.

“Retailers spent over £1bn to process card payments in 2018.”

The BRC said the average cost of accepting a debit card payment rose to 6.23 pence, up from 5.63 pence the previous year. The figure for credit cards was 18.19 pence, up from 16.66p.

It blamed that increase predominantly on steady hikes to scheme fees, which are paid by retailers’ acquirers to Visa and Mastercard. The cost is typically passed onto merchants.

Although comprehensive data on scheme fees is scarce, the consortium said its findings suggest scheme fees increased by 43 percent in terms of pence per transaction compared with 2018.

That marks an acceleration in price rises, with last year’s survey showing a 34 percent increase.

“The BRC are calling for action to improve regulation of card payment fees, expanding and simplifying the regulation to cover the full range of transactions and prevent abuse by card companies,” it said in an accompanying press release.

The consortium added that it supports a market review into acquiring currently being carried out by the Payment Systems Regulator, and said it “anticipates that this will lead to further investigation and action on card fees and charges”.

Visa and Mastercard do not typically comment publicly on scheme fee issues, and both schemes declined to comment when contacted by PaymentsCompliance.

However, it is understood that Mastercard disputes the accuracy of the figures and believes shifting spending patterns would affect the cost of acquiring even if scheme fees remained steady.

Another person familiar with the matter acknowledged a “moderate” rise in scheme fees in recent years, but suggested the onus falls more on retailers that have “not sufficiently taken up their responsibility to negotiate for better acceptance prices”.

“Competition in the market has increased and merchants should compare fees and shop around between acquirers,” they said, speaking on condition of anonymity.

“This comes on top of other innovative payment solutions that are entering the market, which increases competition and widens the choice on the acceptance side.

“Merchants claims are based on perception and there is not sufficient nor comprehensive evidence about scheme fee increases.”

They cited a Belgian government study published in May that concluded merchant fears about rising costs were “unfounded”.

“Regulation of card payment fees must be expanded and simplified in order to cover the full range of transactions and prevent abuse by card companies,” said the British Retail Consortium. “The fee structure as it stands today is unnecessarily complex, hindering both transparency and competition.”

The BRC acknowledged that since the Interchange Fee Regulation (IFR) took effect in late 2015, the cost of card acceptance has fallen for merchants.

The EU-wide reforms capped the fees paid by acquirers to card-issuing banks, which historically make up the largest proportion of acceptance costs passed onto merchants.

The IFR also introduced transparency requirements aimed at ensuring merchants know what proportion of their acquirer fee goes to the issuers, the card networks and to their individual acquirer.

However, the consortium said that the initial cost savings brought in by the regulation are eroding as scheme fees rise — echoing recent findings by payments consultancy CMSPI, which supports merchants in negotiating for better rates.

CMSPI said that capping interchange rates was intended to save retailers as much as €7bn across the EU, but rising scheme fees coupled with savings not being passed on by acquirers has meant “nearly €1bn of savings have been eroded”.

The BRC added that the ability to switch between acquirers has lowered costs for “a handful of sizeable retailers” among its members.

However, it said that “for many merchants this involves a long and arduous exercise”.

It called for the European Commission’s upcoming review of the IFR’s effectiveness to consider regulating scheme fees as well as interchange. Such a move would likely be fiercely resisted by the card networks themselves.

“Regulation of card payment fees must be expanded and simplified in order to cover the full range of transactions and prevent abuse by card companies,” the survey said.

“The fee structure as it stands today is unnecessarily complex, hindering both transparency and competition.”

The survey also found that for the first time, consumer spending by credit card outstripped spending with cash for the first time in 2018. Debit card transactions make up by far the largest share of retail spending by value.