The Payment Systems Regulator, which oversees the payments market, has alleged the five firms ‒ Mastercard, allpay, APS, PFS and Sulion ‒ broke competition laws.

What are prepaid cards?

Prepaid cards are not like debit or credit cards. With a prepaid card, you have to load money onto the account before you can use it for purchases or cash withdrawals.

The idea is that this can make budgeting easier; as there is no overdraft buffer in place, if you don’t have the money on the card, you simply cannot spend it.

They have also proved useful for holidaymakers as an alternative to taking their debit or credit card overseas, removing the need to carry around all of your holiday money in one go.

In this case, the prepaid cards were used by local authorities to distribute welfare payments to vulnerable members of society. These included homeless people, victims of domestic violence and asylum seekers.

What did the firms do wrong?

According to a ‘statement of objections’ sent by the PSR to the five card providers, there were two infringements of the Competition Act 1998, which took the form of market sharing.

The first infringement lasted from 2012 to 2018 and involved all five firms, while the second ‒ which ran from 2014 to 2016 ‒ involved APS and PFS.

The investigation found that the five card providers agreed not to target or poach each others’ public sector customers that had come through the National Prepaid Cards Network, a body made up of public sector bodies which was sponsored and funded by MasterCard. According to the PSR, the five firms allocated leads from Network events between themselves.

The PSR argued that because of this alleged collusion, public bodies were subjected to limited choice, potentially having to pay more for a lesser quality of service than if they were able to pick the provider outright.

Mastercard, allpay and PFS have all admitted they took part in anticompetitive arrangements and agreed to settle. Should the PSR ultimately conclude that these laws have been broken, the firms will face the maximum fines, coming to a total of more than £32m.

Chris Hemsley, managing director of the PSR, said that by colluding in this way the card providers were acting as a cartel.

He added: “Because of the reduced competition local authorities may have been missing out on an alternative supplier or products that were either cheaper or better suited to both their needs and the needs of those using the prepaid cards.”

A spokesperson for Mastercard said it was committed to upholding all regulatory and legal standards, and apologised for the actions of two former employees which had meant the firm failed to meet the standards expected.

They added: “We have taken this issue, which was isolated to UK prepaid cards, very seriously and have put further controls and training in place to ensure it cannot occur again, while working with the PSR to settle this matter at the earliest possible opportunity.”