The PSR has taken a significant step towards addressing competitive concerns in the UK’s card payment systems by proposing a cap on cross-border interchange fees.
This initiative follows the publication of the PSR’s final report, which reveals the detrimental impact of escalating fees on UK businesses, urging a reconsideration of the fee structure imposed by major card networks like Mastercard and Visa.
In recent years, Mastercard and Visa have increased their cross-border interchange fees substantially—from 0.2% to 1.15% for debit cards and from 0.3% to 1.5% for credit cards. This dramatic rise, particularly between 2021 and 2022, has been identified by the PSR as disadvantageous to the interests of UK businesses and, by extension, to their customers. According to the PSR’s findings, these fee hikes have cost businesses an additional £150m to £200m annually.
The lack of competitive constraints has allowed these card giants to elevate fees without sufficient justification or consideration of the impact on the market. The PSR’s Managing Director, David Geale, highlighted the necessity of the proposed price cap, stating, “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.”
The regulator’s proposed solution involves a consultation on potential price caps. Depending on the consultation’s outcomes, the PSR may implement a phased intervention beginning with a short-term interim cap, reverting fees to levels before the significant hikes, or setting them at rates that would cover transaction costs. The PSR seeks input from all sectors to determine the most effective and fair fee cap levels.
The consultation period is open until February 7th, offering a platform for stakeholders to present their views and evidence, influencing the eventual establishment of long-term regulatory measures.
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