Summary of key market research findings
The PSR final report identified several barriers to change (or ‘worrying features’) for merchants up to £50m a year in revenue:
- Lack of transparency: Acquirers and independent sales organizations generally do not publish prices for card acquiring services. Also, their pricing structures and approaches to indicative pricing vary widely. It is therefore difficult for a trader to compare prices in the market.
- Permanent contracts: Contracts with acquirers and payment facilitators for acquiring cards are for an indefinite period, which could mean that there is no clear trigger for a merchant (1) to consider seeking a another supplier who may offer better value or (2) negotiates with his supplier.
- Point of sale terminals and contractse.g. POS terminals and POS terminal contracts that prevent or discourage merchants from seeking and switching providers. This can happen because a merchant usually cannot use their existing POS terminal with a new card acquirer. If he changes card acquiring service providers, he may need a new POS terminal and cancel his existing POS terminal contract, which may result in significant early termination fees. Point-of-sale terminal contracts may have different renewal terms than contracts with card acquirers and may renew automatically for successive fixed terms, which also makes it difficult to terminate a service contract. acquisition of cards.
PSR is confident that fixing these features will improve results for small and medium merchants.
Read more about the PSR final report in our Engage article “Card Acquiring Services: PSR will work to increase search and change for the majority of merchants”.
What remedies are offered?
PSR offers four potential remedies, summarized below. It invites card acquirers and, where applicable, point-of-sale terminal lessors to draw up detailed proposals for specifications for the remedies and for any other measures they wish to propose. Proposals should include supporting evidence as to why they would be effective and proportionate.
Summary Information Boxes
- These would contain standardized information on the key facts defining the key prices and non-tariff service elements, both in a specific bespoke and individual format provided to each merchant, and in a generic format.
- Individual summary boxes could also provide merchants with information on options for migrating to other tariffs or switching providers.
- Generic summary boxes would be provided to all customers and potential customers on vendor websites, allowing merchants to quickly assess pricing and service options among a range of acquirers.
- To help traders compare information, there should be some degree of standardization between the two types of boxes.
- In light of evidence gathered from work in other markets (for example, a joint FCA/CMA report on consumer redress from 2018), PSR suggests that summary information boxes would be most effective when they are used in combination with other tools (e.g. DCTs and remedy triggers) to help traders compare and switch between offers.
Boosting Digital Comparators (DCTs) for Traders
- PSR points out that DCTs are not well established in the card acquiring market. Some of the current barriers to entry into the CSD market, including the unavailability of price information, should therefore be resolved.
- The PSR does not currently envisage any direct intervention on pricing structures (see below), but some reforms aimed at improving the availability and accessibility of price information from card acquirers and ISOs to third-party intermediaries could stimulate the entry and development of the DCT in this market. This could involve:
- Provision of price information and other information on services comparable to CSDs by card acquirers;
- Collection and presentation of comparative prices and other regularly updated service data in formats easily usable by CSDs;
- Enable merchants to share their acquirer transaction data with third parties so that it can be used by CSDs to assess merchant options, where merchants want to do so and have consented.
- Merchant confidence in the accuracy and fairness of DCT data is critical to ensuring good outcomes for consumers and merchants.
- Prior to issuing an interim decision on corrective action, the PSR may commission a study to assess the feasibility of DCTs for card acquiring services.
- This would be a standardized message sent by card acquirers to merchants before the initial minimum term expires and then annually to trigger the commitment. For contracts with no initial minimum duration, or for which the initial minimum duration is exceeded, the annual trigger messages would still apply.
- As other markets show (e.g. FCA’s work on current account switching and home insurance), the timing, content and method of delivery of trigger messages will be important to their effectiveness in triggering the ‘commitment.
Eliminate barriers to switching between card acquiring services that arise from leasing point-of-sale terminals
- The initial focus will be on studying the effectiveness of removing technical barriers to switching POS terminals. If PSR finds that this potential remedy does not appear likely to succeed, it will consider taking steps to directly address contractual impediments.
- The PSR will begin by looking specifically at the portability of POS terminals when a merchant switches between card acquiring services as a technical solution.
One size does not necessarily fit all
It is recognized that certain remedies are likely to be more effective for some merchants than for others within the target merchant groups (i.e. those with a turnover of up to £50 million per year). For example, informational remedies may be relatively more beneficial to small traders who are less able to absorb the cost of researching options. PSR will take this into account in its future work on remedies.
Some potential remedies are on the back burner for now
The PSR keeps a few potential remedies on its radar but does not plan to explore them further during this first stage of consultation:
- Pricing simplification by service providers: The PSR considers this to be a “credible option” to facilitate price comparisons by merchants, but there would be associated risks, particularly for product and price innovation. If other remedies prove ineffective, PSR will reconsider this one.
- Fixed-term contracts: The PSR takes into account previous comments from stakeholders that the imposition of fixed-term card acquisition contracts would create a risk that merchants who do not act before the end of a contract will lose access to services. acquisition of cards. However, the possibility of introducing them as another trigger to engage traders in research and change remains within the scope of PSR’s work.
Monitoring framework to be put in place
In the longer term, PSR will establish a framework to monitor merchant and consumer performance in the card acquiring market. It will use it to assess the effectiveness of the remedies put in place.
The framework will be developed in consultation with stakeholders, including card acquiring service providers, as well as merchants and merchant representatives. It will be dissociated from the control by the PSR of compliance with the requirements put in place.
The PSR does not rule out further intervention if it finds that the corrective measures do not meet its objectives of increasing merchant engagement and ensuring that the market works better for them. The industry should therefore prepare for the PSR to maintain the regulatory spotlight in this market for some time to come.
The consultation ends on April 6, 2022 at 5 p.m. PSR is also working on a cost-benefit analysis (CBA) of proposed remedies. It makes clear that this will be important to ensure that any results are effective and proportionate. Her proposed approach to the CBA is published in the consultation appendix, and she invites feedback from stakeholders on this as well as solutions.
Once this first stage of consultation has been completed, the PSR will render a provisional decision, including a draft notice of appeal. Publication of the Preliminary Determination will provide all interested parties with an opportunity to comment on its proposals and supporting analysis as well as the proposed Remedial Action Notice.
The PSR will publish a notice of final appeal following the consultation on the preliminary decision. The Final Action Notice will contain information about the timelines for implementing any changes. The timetable for the provisional and final notices of appeal is not very precise, the consultation only referring to a publication “in 2022”.