The Payment Systems Regulator is propsing to cap cross-border interchange fees on credit and debit cards to protect UK businesses from rising costs.
The regulator is proposing a two-stage process to protect UK businesses from overpaying on interchange fees. This includes:
- An initial time-limited cap of 0.2% for UK-European Economic Area (EEA) consumer debit transactions and 0.3% for consumer credit transactions (where the transactions are made online[1] at UK businesses)
- A lasting cap on these interchange fees in the future, once further analysis has been carried out to establish an appropriate level.
The PSR's proposal comes after Mastercard and Visa raised fees for EEA card transactions accepted by UK businesses in the wake of the Brexit vote.
The watchdog believes that the card schemes have "likely raised these fees to an unduly high level", at the expense of UK businesses. Last year alone, the PSR estimates that UK businesses paid an extra £150-200 million due to the fee increases.
The PSR’s current view is these UK businesses have little choice but to pay the increased costs as Mastercard and Visa cards account for 9 out of 10 online transactions at UK businesses using EEA-issued cards.
Chris Hemsley, managing director at the PSR, says: “In this market review we have provisionally found that the fees charged by Mastercard and Visa to UK businesses which accept payments from within the EEA are likely too high. In short, at this stage, we do not think this market is working well.
“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 future.”
The window for giving feedback is open until 31 January 2024, with a final report coming in Q1 2024.
Visa has come out fighting against the charges: “We strongly dispute the findings of the PSR’s interim report and believe that the proposed remedies are not justified. Accepting reliable, secure, and innovative digital payments represents enormous value to UK businesses, especially when selling overseas," says the card scheme in a statement to Finextra. “These interchange rates apply to less than 2% of UK card payments - European (EEA) cardholders buying online from a UK seller - and reflect the fact that these transactions are more complex and carry far greater risk of fraud.”