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The Payment Systems Regulator was doing vital work on reducing unfair card fees that are hammering retail. Now the FCA must pick up where it left off, says Tom Ironside
In their recently published report into scheme and processing card fees, the Payment Systems Regulator (PSR) recently found that “increasing fees impacts on UK businesses’ ability to invest and grow.”
They’re right. The BRC’s annual payments survey showed that UK card fees have increased year-on-year for over six years, with retailers spending £1.6bn on card fees in 2023. These rises have happened without justification from the card schemes leading the PSR to conclude that there is a “lack of competition in the UK payments market.”
The government has started to slash what it calls “red tape” and as a part of that policy has decided to absorb the PSR into the Financial Conduct Authority (FCA). While this decision is rightly a matter for government, it is essential that payments regulation remains a priority, with appropriate levels of capability and resources. With the regulator itself acknowledging that the payments market in its current form is hampering investment, it is clear that without regulation, increasing card costs will continue to thwart growth.
Retailers have no choice but to pay up
Despite a slight recovery in cash usage since the pandemic, cards continue to be far and away the preferred method of payment for the public, accounting for 85 per cent of consumer spending. Any retailer that wishes to be successful now has to accept the major card schemes such as VISA or Mastercard, and thus has no choice but to pay increasing fees which continue to be introduced without justification, valuation or consultation.
It is not only scheme and processing fees which have jumped significantly in recent years. The PSR has also concluded that cross border interchange fees, paid by UK businesses transacting with EU consumers, which were previously capped when the UK was part of the EU, have risen to the tune of £150-200m per year since Brexit, again, without justification.
Fees, paid by UK businesses transacting with EU consumers, which were previously capped when the UK was part of the EU, have risen to the tune of £150-200m per year since Brexit without justification
That’s why the BRC and many other businesses have welcomed the PSR’s past findings in both these areas. Their proposal for a price cap on interchange fees would limit the burden on retailers and the intention to consult on remedies for the scheme and processing fees market is another positive step forward.
The retail industry is a key vehicle for economic growth in the UK; £470bn was spent in retail in 2024. Retail is the everywhere economy, providing local, flexible jobs in communities across the country. It is the largest private sector employer, with 3m people employed directly and another 2.7m working in the supply chain. The economic environment is challenging. Retailers face £7bn in additional costs this year as a result of changes to NICs, the National Living Wage and a new packaging tax. Retail operates on tight margins, typically two to four per cent so these costs cannot simply be absorbed and will lead to higher prices and reduced investment in the future. Given this, it is imperative that the FCA continues to strategically use payment regulation in a way that eases the burden on businesses, encouraging economic growth.
We have campaigned on this issue for over 30 years, most recently leading the industry-wide Axe the Card Tax campaign. Years of work from the PSR and businesses has now led to a point where we may see significant reform of the payments market. The focus cannot shift.
The FCA must pick up where the PSR left off, driving meaningful regulations in the payments market that encourages investment across the UK, sparking the economic growth the government and businesses are seeking.
Tom Ironside is director of business and regulation at the BRC