Global: UK Regulator PSR Proposes Cap on Cross-Border Card Fees

The Payment Systems Regulator (PSR) has unveiled plans to cap cross-border card fees after Mastercard and Visa significantly increased their interchange fees in the aftermath of Brexit. Between 2021 and 2022, these fees rose fivefold, with debit card fees increasing from 0.2% to 1.15% and credit card fees jumping from 0.3% to 1.5%. The PSR estimates this surge has added an extra £150-200 million annually to UK business expenses.

In its final report on the issue, PSR Managing Director David Geale stated:

“Our findings confirm that, due to a lack of competition, Mastercard and Visa were able to raise cross-border interchange fees to an unduly high level, costing UK businesses hundreds of millions of pounds.”

To address this, the PSR is launching a consultation on implementing a price cap. The proposal includes a two-stage approach:

1. Interim Cap: Fees could be temporarily rolled back to their pre-increase levels while alternative solutions are explored.
2. Long-Term Framework: Further analysis during the interim phase will guide the development of a sustainable pricing methodology and cap.

Industry Reactions
Mastercard acknowledged the PSR’s willingness to collaborate but cautioned against the potential drawbacks of a cap:

“Artificial controls on interchange do not reflect the commercial reality of today’s market and, if not set at the right level, can negatively impact the value people and businesses receive from card payments.”

Meanwhile, the British Retail Consortium welcomed the move, with spokesperson Chris Owen stating:

“The Payment Systems Regulator has confirmed what businesses have long known – that the card payments market is broken and needs fixing… The proposed price cap to address this is welcomed by the retail industry.”

This proposal comes after the PSR refrained earlier this year from capping Visa and Mastercard fees for domestic UK transactions, despite growing concerns over competition and increasing processing costs.

The consultation aims to provide clarity and fairness in the card payment market, ensuring that businesses and consumers are not disproportionately burdened by excessive fees.