I commend the PSR for launching this review, and I have waited in anticipation for the results. This reply was finalised upon reading all related documentation published on the PSR website and drawing from public information sources.
The points summarised below are only some of the reasons that prompted my reply, and I hope this document will be of value for the final PSR report:
• The merchant services providers assessed do not seem to be representative of the UK market, and whilst some important players are included, the differences in their operating models make the merchant questionnaire difficult to answer and the replies misleading. With the pandemic driving many small businesses to digital, failure to include a representative sample of merchant services providers will leave out a large proportion of businesses that accept card payments and a large proportion of service providers that offer these services of. The scope of the review should be revisited, if only from a fairness and competition angle. (see ADDRESSABLE SPACE section).
• The specific characteristics of a merchant must be taken into account when crafting any assessment: what applies to a large retailer will generally not apply to a small ecommerce seller. (See Merchant Services Providers Models section)
• The merchant questionnaire seems to take a “one-size-fits-all” approach. The supply of merchant services is complex and depends on a number of factors, such as the size of the merchant. Perhaps due to its complexity, it increasingly lacks transparency. This means that SMEs would find it difficult, if not impossible, to give true answers to some of the survey questions as they have no visibility on the constituents of some elements (See FEES & CHARGES section). This should be examined further from a transparency angle.
• The PSR interim report suggests that the benefits of the Interchange Fee Regulation has only been passed on to larger merchants, but not to smaller merchants. This is easily explained as smaller merchants are not offered the transparency on fees that larger merchants benefit from. I suggest further analysis of all the fees that apply to the various commercial models, and not just interchange (See FEES & CHARGES section).
• The definition of value-added-services (VAS) is vague and should be considered for further investigation. For instance, PCI fees are charged, but the provision of a PCI portal is not a value-added service as it merely satisfies acquirers’ card scheme reporting requirements (See PCI DSS Related Fees section) and merchants have no choice but to pay. The cost to SME merchants runs to tens of millions of pounds per annum.
• Given the current pandemic, the telephone channel should be specifically reviewed. In this channel, merchants do not get similar incentives as for other channels (face-to-face or e-commerce), and have to invest in extra fraud prevention capabilities to fulfil their obligations, or face negative financial impact if they don’t. Given current trends, this should be examined from a financial inclusion angle. If merchants cannot invest in extra fraud prevention capabilities in the telephone channel, this means of interaction will not be made widely available to vulnerable segments. In addition, service providers find it difficult to offer their solutions, which stifles innovation in this space. (See Telephone Payments section).
• Underwriting practices should be examined from a competition and innovation angle (see Underwriting section).
© 2020 Neira Jones – PSR Consultation Reply – December 2020