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cheques, automated payments (direct debits, standing orders and automated credits), and debit and credit card
transactions. The market has grown at 23 per cent a year in the 1980s, with paper declining and automated growing, and the system has now expanded to 21 members, suggesting that market entry is not a problem.
28. Competition is strong for large accounts, like salary payments for large firms, and the accounts of local authorities and the public utilities, which have a lot of direct debit receipts. Although Lloyds and Midland have market shares of 30.6 per cent for cheques and 33.8 per cent for all-automated, and shares of up to 37 per cent for some types of transaction, no concerns have been expressed. SFS are probably not significant users of many of these services. However, the Financial Times reported (11 April 1992) that while the large retailers pay only 4p for clearing a cheque, the smallest retailers may pay up to 63p.
e Merchant acquisition
29. Merchant acquisition services involve merchants acquiring the paper receipts (relating to credit and debit card transactions) from retailers and reimbursing them for a charge. In turn the merchant is reimbursed by the card issuer, but has to pay to the issuer some of the service charge levied on the retailer. The issuer then obtains payment from the customer.
30. Until 1989 there was only one merchant acquirer for each of the two systems in operation in Great Britain. In 1989 each of the 4 main banks, and also the Royal Bank of Scotland, entered the market. In its 1989 report on Credit Card Services (cm 718, August 1989) the MMC found that although the monopoly had led to a level of profits which was against the public interest, the increase in competition then occurring would, in combination with one specific recommendation removing the rule requiring merchant acquirers to be card issuers, would put pressure on charges. Lloyds and Midland have about a quarter of this market, in which the four big clearing banks have over 90 per cent in total, according to Lloyds (Midland figures give Lloyds and Midland 37 per cent, and the big four 96 per cent of the market).
31. In view of the MMC conclusion that the entry of the main banks into this market would remove the detriment due to lack of competition before 1989, it must be prima facie of concern that the number of large acquirers may be reduced to three by a Lloyds/Midland merger. This is particularly so in view of the recent controversy over large retailers complaining about increases in charges which the banks are seeking. SFS have less power than the large retailers, and have to accept the charges. The Federation of Small Businesses says that switching from one acquirer to another is costly, as there is a start-up fee, bank references are needed, and the charges levied reduce over time, so that a new customer is charged a
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