There is little evidence that big hikes in fees by Visa and Mastercard 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 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 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 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 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 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 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. (Reporting by Huw Jones, editing by Sinead Cruise)