Regulator Plans to Cap Cross-Border Interchange Fees in the U.K.
The U.K. Payment Systems Regulator (PSR) has announced its provisional plans to cap cross-border interchange fees on credit and debit cards, citing concerns over excessive fees charged by Mastercard and Visa. The PSR launched a review after the two companies raised some of the fees in 2021 and 2022.
Mastercard and Visa cards dominate online transactions at U.K. businesses that accept cards issued in the European Economic Area (EEA), accounting for nine out of 10 transactions. This leaves U.K. businesses with little choice but to bear the increased costs imposed by the card networks.
According to estimates, U.K. businesses have paid an additional £150 million to £200 million ($188.4 million to $251.3 million) due to the fee increases.
The PSR intends to introduce the fee cap to protect U.K. businesses while it seeks input on its provisional findings and proposed remedies for the issue. PSR Managing Director Chris Hemsley stated, "In this market review, we have provisionally found that the fees charged by Mastercard and Visa to U.K. 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."
Interested parties have until January 31 to provide comments on the PSR's provisional findings. The regulator plans to publish its final report in the first quarter of next year. If intervention is deemed necessary, a consultation on the proposed remedy package will follow.
Visa strongly disputes the PSR's findings and believes the proposed remedies are unjustified. A Visa spokesperson argued that the interchange rates in question apply to less than 2% of U.K. card payments, specifically European (EEA) cardholders purchasing online from U.K. sellers. Visa maintains that these transactions are more complex and carry a higher risk of fraud.
Mastercard was unable to provide an immediate response for comment.
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