LONDON, May 21 (Reuters) -

There is little evidence that big hikes in fees by Visa and

Mastercard ( MA ) on retailers who use their cards have also led to

major improvement in service, Britain's Payment Systems

Regulator said in provisional findings on Tuesday, flagging

concerns competition was not working.

Visa and Mastercard ( MA ) have long dominated the market for

payment cards, triggering calls from UK lawmakers for closer

scrutiny from the PSR, which launched an investigation.

"The PSR found that over the past five years, and after

taking account of volume changes, Mastercard ( MA ) and Visa have

increased their scheme and processing fees by more than 30% in

real terms. There is little evidence that the quality of service

has improved at the same rate," the PSR said in a statement.

The PSR's 158-page interim report said estimates that the

fee increases have added more than 250 million pounds to costs

for UK businesses.

UK businesses have little choice but to pay these

increased costs as Mastercard ( MA ) and Visa cards account for 95% of

transactions using UK-issued cards, the PSR said.

"We disagree with the findings of the PSR's interim

review. The payments industry has never been more competitive,

which is reflected in the wide choice of payment options

available to British consumers and businesses," Mastercard ( MA ) said

in a statement.

Visa was not immediately available to comment.

The PSR said it has proposed "remedies", for public

consultation, that include improved transparency for users, and

obligations on Mastercard ( MA ) and Visa to explain, consult on and/or

document the reasons for price changes.

It said it has also proposed greater reporting of financial

information to the PSR on an on-going basis to improve scrutiny

of Mastercard ( MA ) and Visa's UK operations going forward.

The public consultation is open until July 30, and a final

report on card schemes and processing fees is due in the final

quarter of the year.

"If the final report upholds the provisional finding

that the market is not working well, the PSR will consult on the

implementation of any remedies," the watchdog said.