Merchants Awake! Your apathy may be costing your business

The Payment Systems Regulator ( the "PSR") has just published the final report of its market review into card acquiring services.  The review was undertaken in response to concerns that card-acquiring services were not providing value for money for merchants.  This ultimately feeds down the line to us as consumers.   

While there are over 100 acquirers and 50 payments facilitators providing card-acquiring services in the UK, this sector remains dominated by a small number of players.  These include the five largest acquirers (Barclaycard, Elavon, Global Payments, Lloyds Bank Cardnet and Worldpay) who still account for 36% of market share but, joining the ranks largely as a result of the growth in digital services, are a wave of newer acquirers and payment facilitators including Adyen, Stripe, Settle and Square. Together, the 15 top firms account for around 95% of card transactions acquired at UK outlets by number and value of transactions.

Big or Small - it makes a difference

It seems that large merchants with annual turnover above £50m are in a strong position.  They have the resource and knowledge to put providers to the test, they can use competitive tenders to select providers, know what they want and are in a relatively strong bargaining position on price since they generate significant revenue for the acquirers.  

On the flip side, small and medium-sized merchants experience worse pricing outcomes than their larger cousins.  That said, there is a view that they don't really help themselves.  The report notes that they are fairly reluctant when it comes to searching for other providers or considering whether they should move.  42% had not considered switching their provider in the past two years and, of those, 61% reported that they had never searched for other providers.  There is a time and place for "if it ain't broke don't fix it" but not where your business is paying more than it should - especially when the merchant survey concluded that 76% of merchants who had switched found it easy.  It may be that they are put off by the difficulty in making sensible comparisons between what they currently have and what is on offer.  It is clear that obtaining prices and being able to properly compare them across providers is not straight forward.  Pricing structures and approaches to headline rates vary significantly making comparison difficult.

What Next?

The report concludes that the market generally works well for the largest merchants.  For other merchants that isn't the case but that is not, it seems, because of a lack of providers willing and able to service them.  This, then, is a difficult nut to crack.  We have seen with current account switching that  consumer apathy played a large part in customers sitting tight but that has now changed to some extent with online and mobile banking offerings and better customer service being reported as the most common reasons why customers switch bank accounts along with rather enticing upfront welcome bonuses available from banks from time to time.  But that is unlikely to work for merchants who are busy running their businesses.

The PSR says that it will now work with the industry to develop remedies to increase merchant engagement and ensure that the market works better for them.  A good start would be ensuring that market participants are required to provide pricing information in a consistent way to enable easy comparison for those merchants for whom accepting card and online payments is a necessary evil with the accompanying admin being nothing but an unhelpful distraction from their real business.  Regulators making disclosure rules in the B2B space? That, I fear, might be a very long way off.