Global: UK Payments Regulator Proposes Interchange Fee Cap to Safeguard Businesses

The Payment Systems Regulator (PSR) is introducing a proposal to impose a cap on cross-border interchange fees for credit and debit cards to shield UK businesses from escalating costs.

The proposed approach consists of a two-stage process designed to prevent UK businesses from overpaying on interchange fees:

1. An initial time-limited cap of 0.2% for UK-European Economic Area (EEA) consumer debit transactions and 0.3% for consumer credit transactions (specifically for online transactions at UK businesses).
2. The establishment of a lasting cap on these interchange fees in the future, following further analysis to determine an appropriate level.

This initiative by the PSR is in response to fee hikes by Mastercard and Visa for EEA card transactions accepted by UK businesses post-Brexit. The regulator believes these card schemes have raised fees to an unjustifiably high level, causing financial strain on UK businesses. In the previous year alone, the PSR estimates that UK businesses incurred an additional £150-200 million in costs due to these fee increases.

The PSR emphasizes that UK businesses, which predominantly rely on Mastercard and Visa cards for online transactions with EEA-issued cards, have limited alternatives to absorb these heightened costs.

Chris Hemsley, Managing Director at the PSR, comments, “In this market review, we have provisionally found that the fees charged by Mastercard and Visa to UK businesses accepting payments from within the EEA are likely too high. In short, at this stage, we do not think this market is working well.”

He adds, “Should we ultimately conclude this is the case, our interim report sets out a range of potential solutions which could be implemented. We are also considering the longer-term outcomes so we can determine how we may need to adapt these fees in the future.”

The PSR invites feedback on this proposal until January 31, 2024, with a final report expected in Q1 2024.

In response, Visa has contested the PSR’s findings, stating, “We strongly dispute the findings of the PSR’s interim report and believe that the proposed remedies are not justified.” Visa contends that these interchange rates apply to less than 2% of UK card payments and are essential for facilitating secure and innovative digital payments, especially in international transactions.