Amid concerns over rising costs, the UK’s payments regulator is considering capping cross-border card fees.
- Visa and Mastercard’s fee hikes since Brexit have significantly increased business costs.
- The Payment Systems Regulator (PSR) is consulting on how best to implement a price cap.
- Businesses face millions in extra charges due to the current fee structure.
- A proposed interim cap may provide temporary relief while a detailed review is conducted.
The UK’s Payment Systems Regulator (PSR) has expressed concern over the recent increase in cross-border card fees implemented by Visa and Mastercard. Since leaving the EU, the regulatory caps that previously controlled such fees have lapsed, allowing significant rate hikes. This increase has been characterised by a rise from 0.2% to 1.15% for debit cards and from 0.3% to 1.5% for credit cards, translating into an additional cost of £150-200 million annually for UK businesses. This dramatic fee surge is seen as damaging to the interests of both businesses and consumers, according to the PSR.
David Geale, Managing Director of the PSR, highlighted the lack of competition that enabled Visa and Mastercard to raise their fees aggressively. “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,” he stated. In response, the PSR is actively exploring the potential implementation of a price cap remedy to prevent further financial strain on UK businesses.
Mastercard has contested the notion that Brexit directly influenced their fee adjustments, arguing instead that “fraud differentials do justify and explain the increases”. The company also challenges the legal basis of the PSR’s proposed price cap, questioning whether the regulator possesses the authority to enforce such an intervention. Mastercard asserts, “The legal basis for the proposed interim remedy is incorrect and cannot be regarded as appropriate for that reason.”
The PSR intends to approach the situation in a phased manner, beginning with a consultation on introducing a temporary cap on fees. This interim measure could revert fees to their pre-increase levels or potentially establish a new, practical rate that allows issuers to recuperate transaction costs. This initiative is set to run in parallel with an ongoing analysis to establish fairer long-term regulation. The consultation period is scheduled to culminate on 7 February 2025.
The PSR’s proactive steps aim to alleviate the economic burden on UK businesses while ensuring a competitive and fair regulatory environment.
