The Payment Systems Regulator (PSR) has published the interim report for its market review into cross-border interchange fees. It is now seeking views on its provisional findings and proposed approach to remedies to help inform the final report.

The PSR is proposing to introduce a price cap to protect UK businesses from overpaying on these interchange fees. Subject to the PSR’s final report and further consultation on remedies, this could happen in two stages:  

  • 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.  

Why is the PSR proposing this action? 

Cards are the most popular way for consumers to pay for goods and services in the UK and the EEA[2], so it is crucial that the market works well.  

Every time people use Mastercard or Visa debit or credit cards issued in the EEA for online retail transactions with UK businesses, UK businesses pay cross-border interchange fees. After Mastercard and Visa significantly raised some of these fees in 2021 and 2022, the PSR has been examining the level of these fees to understand whether they, or other factors, indicate the market is not working well. 

The PSR has set out its provisional concerns that Mastercard and Visa 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, said: 

“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. They 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.”  

What happens next? 

The PSR is keen to receive feedback on its provisional findings and proposed approach to remedies from anyone with an interest in online retail payments between the UK and EEA - particularly issuers, acquirers, card scheme operators, businesses, and cardholders. 

The window for giving feedback is open until 31 January 2024.  

The PSR intends to publish its final report on cross-border interchange fees in Q1 2024, but will confirm these timeframes in due course. If the PSR concludes the market is not working well and it warrants intervention, this report will be followed by a consultation on the remedy package.  

Notes: 

  • Since the UK left the EU, previously regulated caps on UK-EEA card-not-present interchange fees for retail transactions no longer apply. Visa and Mastercard have increased the interchange fees on online purchases made by EEA consumers at UK businesses and vice versa fivefold, from 0.2% to 1.15% for debit cards, and 0.3% to 1.5% for credit cards.   
  • An interchange fee is fee that acquirers pay to issuers each time a card is used to buy goods or services. This is a per-transaction fee and is usually levied as a percentage of the transaction value. The interchange fee charged can vary depending on transaction and interchange fee type. Visa and Mastercard’s cross-border interchange fees (IFs) affect cards issued in the EEA and used at UK businesses (outbound IFs), and cards issued in the UK and used at EEA businesses (inbound IFs). UK businesses are primarily impacted by the increases in outbound IFs, which the PSR’s suggested caps would apply to. The use of ‘cross-border interchange fees’ and ‘interchange fees’ throughout the press release refers specifically to UK-EEA outbound IFs on card-not-present (online) retail transactions.
  • The PSR is also consulting on its proposal to close its review of inbound IFs for administrative priority reasons.
  • A full history of the PSR’s market review into cross-border interchange fees can be found here.

 

[1] This includes online and other remote transactions 

[2] Worldpay from FIS, Global Payments Report 2023, page 75