Could card payments help replace construction retentions?

If the Commercial Payments Bill removes cash retentions, Visa and Mastercard should be part of the replacement conversation.

The Commercial Payments Bill [HL] is moving through Parliament with a clear objective: tackle poor payment practices and improve cash flow for UK businesses. One of its most significant provisions is the proposed ban on retention clauses in the construction sector. The Bill’s long title expressly refers to banning retention clauses in construction, alongside wider measures on commercial payment terms, late-payment interest and the powers of the Small Business Commissioner.

That is a major intervention. For decades, cash retentions have been used in construction as a way for buyers, main contractors or clients to hold back a percentage of payment until works are completed and defects are resolved. In theory, this gives the buyer leverage. In practice, it can leave subcontractors and SMEs waiting months or years for money they have already earned.

During the House of Lords Second Reading debate on 9 June 2026, Lord Leong said the Construction Leadership Council estimates that around £4bn to £6bn is held in retentions across the industry at any given time, with approximately £223m in retention payments lost annually due to insolvency. The Government’s position is that the Bill will ban retention clauses in construction contracts, with a transition period to allow industry and clients to adapt and alternative surety products to develop.

That raises an obvious question: if retentions are removed, what replaces them?

The buyer-side concern is real

The debate surfaced the practical concern very clearly. Retentions may be a blunt instrument, but they have historically been used as leverage to ensure contractors return to fix defects, snags or poor workmanship.

Lord Hunt noted that retention payments have, at times, served as a limited form of protection against defective work, and asked how defects would still be rectified if the retention option is removed.  Lord Docherty made the same point in practical terms: part of the retention is typically held until the defect period ends, often 12 to 24 months, during which the contractor is expected to return and fix faults.

The Government response is that retentions are not an effective means of preventing defects or remediating significant problems, and that it will work with the Construction Leadership Council, construction clients and the financial services sector to develop practical approaches and alternative surety products.

That is where the payments industry should be paying attention.

Where Visa and Mastercard could play a role

Thinking laterally, commercial card and virtual card rails could form part of the replacement toolkit.

A card payment is not just a payment. It also carries data, controls, authorisation rules, dispute rights, issuer/acquirer accountability and scheme governance. In many sectors, chargeback provides a route for a cardholder to dispute a transaction where goods or services were not received, were defective, or were not as described.

Visa’s own public guidance says chargeback is available as an option on Visa debit, credit and prepaid cards, although it is not a legal right and a refund is not guaranteed. It also says claims are usually subject to time limits, with Visa referring to 120 days from purchase in its public guidance.  UK Finance similarly explains that chargeback may be relevant where goods or services are faulty, defective, or not delivered, and that the customer will generally need evidence such as invoices, receipts and correspondence.

So, if the policy objective is to stop the withholding of cash from SMEs, while preserving a reasonable remedy for buyers where work is genuinely defective, there is a credible proposition here:

Use commercial card or virtual card rails for final-stage construction payments, giving suppliers faster cash while giving buyers a structured, evidence-based dispute route if the final work is defective, incomplete or materially different from what was agreed.

This would not be a simple “chargeback replaces retention” argument. That would overclaim. But card rails could be positioned as one component in a broader retention-free payment model.

The best use case: final-stage and defined-scope payments

The most obvious opportunity is not the whole construction contract. It is the final payment, or a defined milestone payment, where the scope of work is clear and evidence can be attached.

For example:

• final invoice after practical completion

• payment against a defined snagging schedule

• payment for a specific trade package

• modular construction components

• M&E packages

• fit-out works

• facilities and maintenance projects

• smaller SME-led construction contracts

  
  

A virtual card could be issued for a specific invoice, supplier, project, contract and completion certificate. The payment could be linked to purchase order data, photos, sign-off documents, QS or architect certification, correspondence and agreed specifications.

That matters because chargeback and dispute handling live or die by evidence. If the buyer later says “the work was not completed” or “the work was materially defective”, the issuer, acquirer and merchant need a clean evidence trail. Card rails are well suited to creating that audit trail.

The limitations need to be acknowledged

There are several reasons why chargeback alone is not a complete substitute for retention.

First, chargeback is a scheme process, not a statutory construction remedy. Visa’s public guidance is explicit that chargeback is not a legal right and that a refund is not guaranteed.

Second, timing is a problem. Construction defect periods can run for 12 to 24 months, as highlighted in the Lords debate.  Chargeback windows are usually much shorter, commonly around 120 days depending on the scheme, card provider and circumstances.

Third, chargeback is generally limited to the value of the transaction being disputed. Visa’s public guidance says the amount claimed cannot be more than the value of the purchase, and cannot include interest or penalties.  That means it will not automatically cover consequential loss, delay damages, legal costs, full rectification costs above the payment value, or broader project risk.

Fourth, commercial card use in construction raises practical questions: acceptance, transaction limits, procurement policy, evidence standards, contract wording, and how scheme disputes interact with construction adjudication. The Bill debate also noted that construction already has its own statutory dispute-resolution regime under the Housing Grants, Construction and Regeneration Act 1996, and that Small Business Commissioner adjudication powers are not expected to apply to construction contracts because of those existing mechanisms.

Those points do not kill the idea. They define where it fits.

The proposition: card rails plus surety, not card rails instead of surety

The strongest proposition for Visa, Mastercard, issuers and acquirers is this:

Commercial card and virtual card rails can support a retention-free construction payment model by combining faster supplier payment with invoice-level controls, rich data, dispute management and structured buyer protection. Longer-tail defect risk should be covered by warranty, insurance, bond or surety products.

In other words, this should not be sold as “pay by card and you no longer need any other protection.” It should be sold as part of a new package:

1. Immediate or prompt payment to the supplier, improving cash flow and reducing SME insolvency risk.

2. Virtual card controls, ensuring the payment is made only to the right supplier, for the right project, against the right invoice.

3. Enhanced data capture, including purchase order, contract, project, work package and completion evidence.

4. Structured dispute process, available where goods or services are not delivered, defective or not as described.

5. Optional defect warranty or surety wrapper, covering the longer 12–24 month defect-risk period.

6. Clear evidence pack, including photos, certificates, snagging documents and correspondence.

7. Integration with construction payment workflows, rather than treating the card transaction as an isolated payment event.

   
   

That is a much more compelling model.

Why the schemes should care

This is a rare moment where public policy, SME cash flow, construction reform and B2B payments innovation intersect.

The Government has already said it wants the financial services sector to help develop surety products for the construction sector.  But the conversation should be broader than bonds and insurance. Payments infrastructure also has a role to play.

Visa and Mastercard have spent years promoting commercial cards, virtual cards, supplier payments, invoice automation, working capital optimisation and data-rich B2B payments. The proposed abolition of retentions creates a fresh use case: not simply paying suppliers faster, but doing so in a way that gives buyers structured protection without withholding cash from the supply chain.

That is exactly the kind of problem the card industry should want to solve.

Conclusion

The construction sector does not need retentions recreated under another name. The Bill is clearly trying to prevent that.

But buyers still need practical protection against defective, incomplete or poor-quality work. Suppliers, particularly SMEs, need to be paid fairly and promptly for work delivered. Those two objectives are not mutually exclusive.

Card rails will not replace retentions on their own. But commercial cards, virtual cards and scheme dispute processes could be an important part of the new settlement: faster cash for suppliers, better data for buyers, and a cleaner evidence-based route for disputes.

If retentions are finally removed after more than a century, the payments industry should not be watching from the sidelines. It should be helping design what comes next.