The UK’s Payments Systems Regulator (PSR) proposed a cap on interchange fees for international transactions has attracted criticism from some of the world’s leading companies, according to FT.
Two of the leading digital payment providers, Visa and Revolut, have officially launched legal challenges against the PSR’s plans to cap interchange fees. The firms view the regulator as overstepping its authority and powers.
Upon the news of Visa and Revolut’s legal challenge, the PSR provided a statement to Payment Expert, stating: “We believe we have the legal powers as set out in our report. If there is any judicial review, we will be prepared to defend our decision robustly.”
The PSR introduced the plans in 2023 after it found that interchange fees on international digital transactions increased post-Brexit.
The two leading payment companies, Mastercard and Visa, increased cross-border interchange fees for debit cards from 0.2% to 1.15%. The firms also increased the fee charge from 0.3% to 1.5% for credit cards.
Acknowledging that the increase of these fees is having a negative impact on retailers and merchants across the UK, the PSR called for a cap on these fees to not only prevent them from increasing again but to potentially save up to £200m per-year for companies.
As Mastercard and Visa dominate the payment processing and card issuing UK sector by about 95%, it has been able to increase attached fees for cross-border digital transactions as it does not fall under the European Union Interchange Fee Regulation due to the UK leaving the EU in 2016.
In 2022, Visa defended the rise of interchange fees as a means to curb fraud attempts that it claims have risen in connection to digital transactions. Despite this, the PSR responded and found no “evidence that shows that there have been significant changes in costs” that would justify an increase in fees back in 2022.
Visa & Revolut fight back
In a bid to prevent “UK business from overpaying”, the PSR believes its proposed cap will not only protect the future prosperity for its businesses, but also their consumers. But Visa and Revolut view the PSR’s actions differently.
A Visa statement shared by FT read: “We respect the PSR’s role as an economic regulator. This narrow legal action is focused only on the PSR’s legal authorisation and process related to price setting to ensure a fair and thorough process, and give clarity to the industry. This is critical to future growth and investment in the UK.”
Interchange fees also benefit digital and neobanks across the UK and Europe. Fintechs like Revolut also profit from the additional attached fees and a cap could see the firm lose money on each international transaction.
“We disagree with the PSR’s assessment and believe it has acted beyond its statutory powers in imposing these caps. We have therefore requested the court to review, and ultimately overturn the PSR’s decision,” said a Revolut statement, also seen in FT.
If introduced, a cap on international digital payments could prove substantial for payment processing issuers due to the surge in digital wallet adoption in recent years.
Since the onset of the COVID-19 pandemic, adoption has soared amongst UK consumers, with Apple Pay and Google Pay now becoming predominant payment methods.
European fintechs and banks have argued that payment processing has become more expensive due to the increase of digital wallet adoption.
With two major players in Visa and Revolut challenging the PSR’s cap proposals, this could be one of the final acts from the UK regulator before a potential merge with the Financial Conduct Authority (FCA).
Government ministers are looking to streamline regulatory operations and one of the proposals could see the PSR merge with the FCA, with the former falling under the latter’s remit.
