UK payments regulator introduces cap on Visa and Mastercard cross-border fees

The UK’s Payments Systems Regulator (PSR) has proposed a provisional cap on cross-border interchange fees charged by Mastercard and Visa on transactions made to the European single market.

The regulator on Wednesday explained that Mastercard and Visa significantly raised the cross-border interchange fees paid by UK businesses in 2021 and 2022 and that it had been examining the level of these fees.

Since the UK left the EU, previously regulated caps on UK-European Economic Area (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 per cent to 1.15 per cent for debit cards, and 0.3 per cent to 1.5 per cent for credit cards.

Upon review, the PSR estimates that UK businesses paid an extra £150-200 million due to the fee increases, and that UK businesses have little choice but to pay the increased costs as Mastercard and Visa cards continue to be the dominant form of payment in the country.

With this in mind, the PSR has set an initial time-limited cap of 0.2 per cent for UK-EEA consumer debit transactions and 0.3 per cent for consumer credit transactions (where the transactions are made online at UK businesses).

A lasting cap on these interchange fees will be introduced in the future, once further analysis has been carried out to establish an appropriate level, the PSR said.

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.”

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