Further to our earlier coverage on new EU payment card legislation to lower Interchange Fees on credit and payment cards, the UK payments regulator PSR has today issued draft guidance setting out how it will monitor and enforce newer elements of Interchange Fee Regulation (IFR) which come into effect in June. It explains that acquirers – companies that process card transactions on behalf of merchants – must clarify what costs make up the fee for each transaction, known as the Merchant Service Charge (MSC).
Companies operating in the UK are set to get improved transparency around card payment fees, following draft guidance published today by the Payment Systems Regulator (PSR).
The MSC essentially packages up several costs charged for each card transaction and passes them onto the merchant in one fee. However, acquirers are not currently required to explain to a merchant what makes up this charge.
Hannah Nixon, PSR
Hannah Nixon, Managing Director of the PSR, said:
The lack of clarity as to what is included in the merchant service charge means that companies find it harder to negotiate on fees and are less likely to see reduced costs passed on to them. In turn, merchants cannot then pass these savings to their customers.
Interchange fees charged by UK card schemes (for example, MasterCard and Visa) are now capped in the UK at 0.2% for debit cards, and 0.3% for credit cards.
Traditionally the merchant’s acquirer then passes the cost of the interchange fee on to the merchant as part of the MSC. The new cap means that the average credit card interchange fee has fallen by around 70%.
Hannah Nixon, continued:
The interchange fee is only part of what makes up the Merchant Service Charge but we are still being asked by merchants why they are not seeing the cut in the interchange fee being passed on.
It is up to the individual companies to negotiate on the merchant service charge rate, but we would still expect that acquirers pass on reduced costs to merchants and, in turn, that these are then passed onto consumers.
The new transparency should allow merchants more clarity when negotiating fees. However, if merchants remain unhappy they should contact their acquirer and consider shopping around to get a better rate.
Today’s draft guidance also considers the approach to co-badged cards (cards, popular on mainland Europe, that have two or more payment options on the same card) and requirement for electronic and visual identification on all credit and debit cards.
In addition, the draft guidance also explains that all retailers clearly identify at the shop entrance and point of sale which credit and debit cards they accept, in order to give increased clarity to customers.
The PSR is requesting feedback on the consultation to be submitted by 5pm on Friday 8 July 2016.