UK’s PSR proposes cross-border interchange fee cap
The UK’s Payment Systems Regulator (PSR) has proposed a new cap on cross-border interchange fees in a push to protect UK businesses from overpaying on these fees when accepting payments from cards issued in the European Economic Area (EEA).
The PSR proposes cap on interchange fees
The calls are part of a recently published interim report instigated by the regulator after fee increases by Visa and Mastercard.
The two payment networks – which together account for 90% of online transactions at UK businesses using EEA-issued cards – raised their interchange fees from 0.2% to 1.15% for debit cards and 0.3% to 1.5% for credit cards over the course of 2021 and 2022.
Fees typically run on a per-transaction basis, and are dependent on type of transaction, levied as a percentage of the total transaction value.
Defending the increases, the pair told the UK’s Treasury Committee last year that the raises were due to a greater need to defend against the increased risk of fraud in cross-border transactions.
They also emphasised that they themselves do not benefit directly from the increased fee, which lands with the customer’s card issuer instead of the card payment system.
The interchange fee has historically been capped by the EU’s Interchange Fee Regulation. However, this protection has not applied to UK domestic and cross-border transactions between the UK and EEA since country’s departure from the EU in January 2020.
PSR takes action
After undertaking a three-year review into in the impact of interchange fees on UK businesses, the PSR is now proposing an initial time-limited cap of 0.2% for debit transactions and 0.3% for credit transactions made online.
The cap would apply to outbound interchange fees only, and is expected to be followed by a more lasting cap in the future upon the completion of further market analysis.
The PSR says that given the popularity of cards in online transactions and trade, its latest call to action is part of a move to ensure “that the market works well”.
Its own estimates suspect that UK businesses paid an extra £150 million to £200 million last year as a result of Mastercard and Visa raising fees to what it describes as “an unduly high level”, leaving many with “little choice but to pay the increased costs” given Mastercard and Visa’s prevalence in the market.
“We do not think this market is working well”
“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,” comments Chris Hemsley, managing director at the PSR.
“In short, at this stage, we do not think this market is working well.”
Hemsley says the regulator’s interim report “sets out a range of potential solutions which could be implemented” and are “designed to make sure cross-border interchange fees are set at a level that better reflects the interests of all Mastercard and Visa users”.
“We are also considering the longer-term outcomes so we can determine how we may need to adapt these fees in future.”
The PSR is accepting feedback on its findings until 31 January, and is expected to publish its final report on cross-border interchange fees during the first quarter next year.
