• Jordan Lawrence, Chief Business Development Officer at Volt


• 22.06.2022 04:00 pm
#payments

The UK’s Payments Systems Regulator (PSR) yesterday announced plans to carry out two market reviews focusing on card fees - one on scheme and processing fees, and the other on cross-border interchange fees. The reviews focus on Mastercard and Visa, who according to the PSR have raised fees more than fivefold on some cross-border transactions since Britain left the European Union, whilst on scheme and processing fees, fees paid by acquirers have increased significantly from 2014 to 2018.

It’s not surprising that the Payments Systems Regulator (PSR) has launched these reviews on processing fees and cross-border interchange fees. Merchants have been crying out for a fairer, faster and more seamless solution for years now, not just in the UK, but worldwide.

Over the past several years, constant and significant increases in card fees are eating into merchants’ revenues, and these costs are passed on to consumers. With the acceleration of cashless payments post-pandemic and with today’s cost-of-living concerns, this leads to bitter backlash from consumers.

This is one of the reasons we are seeing rapid increases in the adoption of alternative payment methods, driven by consumer demand for control over their finances, as well as by merchants’ expectations for payments services which are more affordable. The UK and EU Open Banking and PSD2 legislation have sparked innovation across the payments industry and opened a clear path for innovative, alternative payment methods such as account-to-account (A2A) payments.

As businesses embrace a new, more digital way of working, there’s a strong impetus behind the adoption of this new payment mechanism: in the UK alone, open banking has reached the milestone figure of 5 million users in 2021, with adoption increasing at a rate of about 1 million new users every six months.

A2A open payments bring significant benefits for merchants, banks and consumers alike, including speed, security and not least price. The average processing fee for card payments, for example, is currently 1.5%, whereas account-to-account payments cost significantly less, often sub 1% or a fixed price per transaction. A2A payments are also near-instant, meaning merchants can shorten their cash cycle and gain access to revenue much faster than in the case of card payments, which typically take 3-5 business days to process.

Although card payments will continue to remain essential to the smooth running of the UK economy for the next few years, these new reviews are a welcome development in combatting the duopoly  Mastercard and Visa currently have in the industry. Existing card payment processes were designed in the 1970s, but now they are inflexible, expensive, and simply do not fit with today’s consumer landscape. Visa and Mastercard are incredibly impressive businesses, but they’ve been the stable incumbents in this market for the last 60 or 70 years. Today, consumers and merchants alike are demanding faster, simpler and seamless services. Open banking and A2A/ open payments deliver on all three.

One of my fundamental beliefs is that real-time payments will become the new normal. The real winner has to be the consumer, therefore the payment industry as a whole has to put the consumer first. User Experience is the new currency. Consumers, like businesses, increasingly demand real-time alongside security and convenience. It’s a transformational time for payments worldwide, and the UK is at the forefront of that evolution to a future of ultimate payments freedom and state-of-the-art UX.