The Payment Systems Regulator (PSR) is proposing a cap on cross-border interchange fees for credit and debit cards in an effort to shield UK businesses from escalating costs.
The regulator’s proposed approach involves a two-stage process aimed at preventing UK businesses from overpaying on interchange fees:
– An initial, temporary cap of 0.2% on UK-European Economic Area (EEA) consumer debit transactions and 0.3% on consumer credit transactions, specifically for online transactions with UK businesses.
– A long-term cap on these interchange fees that would be established after further analysis.
This proposal comes in response to Mastercard and Visa’s fee increases for EEA card transactions accepted by UK businesses following the Brexit vote. The PSR suggests that these card schemes have likely raised fees to excessively high levels, negatively impacting UK businesses. According to estimates, the fee hikes cost UK businesses an additional £150-200 million last year.
Currently, UK businesses find it difficult to avoid these increased costs, as Mastercard and Visa transactions account for 90% of online payments from EEA-issued cards.
Chris Hemsley, managing director at the PSR, remarked, “In this market review, we have provisionally found that the fees charged by Mastercard and Visa to UK businesses accepting payments from the EEA are likely too high. At this stage, it appears that this market is not functioning effectively.”
He added, “Should we ultimately conclude that this is the case, our interim report outlines various potential solutions. We are also considering long-term implications to determine if adjustments to these fees are necessary in the future.”
Feedback on the proposals is being accepted until January 31, 2024, with a final report expected in the first quarter of 2024.
In response, Visa has strongly contested the PSR’s findings, asserting that the proposed remedies lack justification. They stated, “Accepting reliable, secure, and innovative digital payments brings immense value to UK businesses, particularly for international sales. These interchange rates apply to less than 2% of UK card payments, specifically involving EEA cardholders shopping online with UK sellers, reflecting the increased complexity and risk of fraud associated with these transactions.”