Mastercard and Visa do not face effective competition when dealing with merchants and banks in the UK, Britain’s payments watchdog warns today, leading to higher prices.
The Payment Systems Regulator says, in a new, provisional report, that the supply of scheme and processing services “is not working well” for “acquirers” – the financial institution, such a bank, that acts as an intermediary between merchants and card payment networks.
The PRS warns that there is currently no effective competition preventing Visa and Mastercard raising prices – indeed, the two card providers have raised fees by more than 30% in real terms over the last five years.
“There is little evidence that the quality of service has improved at the same rate,” says the PSR, sternly.
UK businesses have little choice but to pay increased fees, it adds, as Mastercard and Visa cards account for 95% of transactions using UK-issued cards.
Faced with this seemingly failing market, the PSR is seeking views – and also proposes a number of potential remedies to help businesses. They include: • improved transparency so that businesses and acquirers can make informed decisions and are more able to switch to alternative suppliers of optional services; • obligations on Mastercard and Visa to explain, consult on and/or document the reasons for price changes and the pricing of new services; • greater reporting of financial information to the PSR on an on-going basis to improve scrutiny of Mastercard and Visa’s UK operations going forward.
Meanwhile, UK grocery inflation has slowed to its lowest level in two and a half years.
Data provider Kantar reports that supermarket prices are 2.4% higher than a year ago this month, down from April’s 3.2%.
That’s the lowest level since October 2021, and means grocery inflation is less than a percentage point above its 10-year average of 1.6% between 2012 and 2021.
Fraser McKevitt, head of retail and consumer insight at Kantar, says grocery price inflation is gradually returning to more normal levels, after prices soared in the last couple of years.
McKevitt explains:“Typically, an inflation rate of around 3% is when we start to see markedchanges in consumers’ behaviour, with shoppers trading down to cheaper items when the rate goes above this line and vice versa when the rate drops.
“However, after nearly two-and-a-half years of rapidly rising prices, it could take a bit longer for shoppers to unwind the habits they have learnt to help them manage the cost of living crisis."
Tomorrow’s UK inflation report is expected to confirm that price rises are slowing, with the consumer prices Index expected to fall to 2.1% in April, from 3.2% in March.
The agenda • 8am BST: Kantar’s index of grocery inflation • 9.20am BST: Bank of England policymaker Randall Kroszner gives keynote address at London City Week on ‘balancing the productivity opportunities of financial technology and AI against the potential risks’ • 11am BST: CBI’s industrial trends survey of UK manufacturing • 11.15am BST: IMF to conclude its Article 4 assessment of the UK economy • 6pm BST: Bank of England governor Andrew Bailey to give a lecture on “The importance of central bank reserves”
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