The Competition and Markets Authority (CMA) has warned that a merger between PayPal (NASDAQ: PYPL) and iZettle could lead to a lower quality in service and drive up prices for customers.

The UK watchdog has been investigating the merger of PayPal and the Swedish startup and has concluded that the merger, which was completed in September, has taken away sufficient competition in the UK.

“Payment services markets are evolving so it’s particularly important to look to the future when we assess competition and the effects of mergers on customers,” said the CMA Executive Director, Andrea Gomes da Silva.

“While iZettle is a relatively recent entrant to payment services, it has already established a market-leading position in mobile point of sale devices and was well-placed to compete against PayPal in other emerging markets. That’s why we are concerned that PayPal’s takeover could lead to higher prices or reduce the quality of the services available to customers,” he added.

If the two groups are unable to address the results of the investigation, the CMA will carry out a second phase.

A PayPal spokesperson said: “PayPal continues to work cooperatively with the CMA as it conducts its review of the acquisition of iZettle. We are now working to address the CMA’s concerns and demonstrate to the CMA that the market will remain competitive, so we can move forward with integrating iZettle into our global platform.”

Whilst iZettle, which provides payment services for start-ups, announced plans to launch an IPO in Sweden, PayPal proposed plans to merge just three weeks later.