The Payment Systems Regulator (PSR) has taken a decisive step to address the soaring costs of cross-border interchange fees on card transactions.
Cross-border interchange fees cap
Following a detailed review, the PSR has confirmed that Visa and Mastercard’s substantial increases in cross-border interchange fees are harming UK businesses, with costs rising by an estimated £150-200 million annually.
To combat this, the regulator is proposing a price cap to bring relief to businesses and their customers.
Rising Fees and Limited Competition
Cards are integral to the UK economy, facilitating everyday transactions between businesses and consumers.
However, the PSR’s final report on cross-border interchange fees highlights significant issues in the market.
Between 2021 and 2022, Visa and Mastercard raised interchange fees for cross-border transactions by up to five times their previous levels, increasing debit card fees from 0.2% to 1.15% and credit card fees from 0.3% to 1.5%.
The regulator attributes these fee hikes to a lack of competition, allowing both card networks to act without sufficient constraints.
The report found no evidence of justifiable reasons for the increases, nor did the card schemes demonstrate that pre-increase fee levels were inadequate.
This lack of rationale, combined with the burden placed on UK businesses, underscores the need for regulatory intervention.
Proposed Solutions: Capping Fees
To address these issues, the PSR has proposed introducing a price cap on cross-border interchange fees, starting with an interim cap while further analysis determines a long-term solution.
The interim cap could revert fees to their pre-2021 levels or be set at a level that ensures issuers can cover transaction costs.
“Cards are a popular way we make payments in the UK,” explains David Geale, Managing Director of the PSR.
“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.
Consulting on a range of options for capping prices is the best way forward to ensure businesses get a better deal.”
Industry Feedback and Next Steps
The PSR has opened a consultation period, inviting stakeholders to submit feedback and evidence on its proposals by February 7, 2025.
This consultation will inform the final remedies notice, expected next year, which will outline the initial price cap and a methodology for establishing a lasting cap.
If implemented, the proposed price cap could significantly lower costs for businesses, improving profitability and potentially reducing prices for consumers.
This move also signals the PSR’s commitment to fostering a competitive card payments market that prioritises fairness and transparency.
As the PSR takes steps to ensure UK businesses are no longer overburdened by excessive fees, the consultation represents a crucial opportunity for industry voices to shape the future of cross-border card payments.
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