The Payment Systems Regulator (PSR) is moving forward with plans to implement a price cap on the fees charged by Visa and Mastercard for UK merchants processing online purchases from European customers.
From 2021 to 2022, Mastercard and Visa significantly increased their cross-border interchange fees, raising debit card fees from 0.2% to 1.15% and credit card fees from 0.3% to 1.5%. The PSR highlights that these post-Brexit adjustments are costing businesses an additional £150-200 million annually.
In its recent final report on the matter, 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 initiating a consultation on a price cap that would be implemented in two stages. The first stage would involve a short-term interim cap, potentially reverting fees to their previous levels before the increases. The PSR is also open to considering additional options during this period.
Further analysis will be undertaken during the interim cap to establish an appropriate methodology and level for a more permanent solution.
In response to the PSR’s actions, Mastercard expressed a willingness to collaborate but cautioned that “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.”
On the other hand, Chris Owen from the British Retail Consortium welcomed the initiative, stating: “The Payment Systems Regulator has confirmed what businesses have long known – that the card payment market is broken and needs fixing… The proposed price cap to address this is welcomed by the retail industry.”
Earlier this year, the PSR had refrained from capping Visa and Mastercard fees for UK payments, despite expressing concerns regarding competition and sharp rises in processing fees.