European banks have expressed “serious concerns” regarding the UK Payment Systems Regulator’s (PSR) plan to cap interchange fees on cross-border digital transactions.
This proposal, which impacts fees levied by Visa and Mastercard on behalf of banks, is seen by European banking bodies as potentially “discriminatory” and harmful to Fintechs and digital banks that rely heavily on payment fees.
The row exemplifies post-Brexit regulatory divergence challenges, with European industry representatives arguing that their costs of processing payments have increased since Brexit.
They warn that the proposed cap could lead to losses on transactions due to the increased costs associated with digital wallets like Apple Pay and Google Pay.
Why the PSR cap?
The PSR introduced this cap to protect UK businesses from overpaying for cross-border transactions, noting that fees had risen sharply since Brexit, costing UK businesses an estimated £150 million to £200 million in 2022 alone.
To protect UK merchants, the watchdog plans initially to cap interchange fees at their pre-Brexit level of 0.2% on online debit card purchases made by customers of European banks in the UK, and 0.3% for such payments made on credit cards.
The cap would only apply to online purchases made by European customers in the UK, not to online purchases made by customers of UK banks in the European Economic Area, which includes the EU as well as Iceland, Liechtenstein and Norway.
However, the European Banking Federation and Payments Europe are urging the UK Treasury to ensure that EU banks and payment companies are not unfairly disadvantaged by the cap.
They also advocate for further consultation with EU member states before the cap is implemented.
As the debate continues, the PSR has indicated that the cap’s final threshold is still under review, with a final report and further consultation expected later this year.
European industry representatives fear that this move could provoke retaliatory measures from the EU, potentially impacting UK financial institutions operating in Europe.
The PSR said: “We are carefully considering all feedback received and continue to engage with industry. Once we have reviewed all the feedback, we will publish our final report, followed by a further consultation on any remedies and their implementation.”
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