The Payment Systems Regulator (PSR) is considering whether to introduce an interim cap on cross-border interchange card fees to reduce the financial burden faced by UK businesses.
The regulator estimates that increases in cross-border interchange fees since 2021/22 have cost British businesses an extra £150-200m a year. The PSR believes that this has occurred due Mastercard and Visa increasing fees to an ‘unduly high level’.
Mastercard and Visa, the two global payments giants that dominate card issuing across many different markets, benefit from a ‘lack of competition’ in the UK, the PSR believes.
In a market review into card fees, the regulator found that during 2021 and 202 the two firms have raised cross-border fees on debit cards from 0.2% to 1.15% for debit cards, and from 0.3% to 1.5% for credit cards. It is now consulting on whether to introduce a cap on these fees.
David Geale, the PSR’s Managing Director, said: “Cards are a popular way we make payments in the UK. 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.
“We have carefully considered the feedback we have received. We consider that consulting on a range of options for capping prices is the best way forward to ensure UK businesses get a better deal. We look forward to receiving evidence on these proposals from all interested parties.”
The market research and consultation is the culmination of a long-running PSR probe into Mastercard and Visa’s dominance in UK card issuing. Back in May, the regulator first expressed its view that the duo face no effective competition, enabling them to raise fees to levels which significantly impact businesses.
Its consultation will look to determine the most appropriate level at which card fees should be capped. Proposals include a cap at 1.15% and 1.5%, the current debit and credit card fees as outlined above, or potentially a zero cap, the levels used when the UK was in the EU, 0.2% or 0.3%; or a cap below either 0.2% or 0.3%.
The regulator adds that it cannot find any ‘clear rationale’ for why Mastercard and Visa increased the interchange fees. It asserts that neither firm was able to demonstrate that an assessment was undertaken prior to the fees being introduced and there is no evidence that the 0.2% and 0.3% fees are not working.
The consultation will also evaluate whether a phased approach to implementing card fee caps would be more appropriate. Interested businesses have been encouraged to participate in the consultation, which closes on 7 February 2025.