The Payment Systems Regulator (PSR) has confirmed (13 December) that Mastercard and Visa’s sharp increases in cross-border interchange fees are harming UK businesses, costing them an additional £150-200 million annually. The PSR’s final report, published today, identifies a lack of competition as a key factor enabling the fee hikes and proposes capping these fees to safeguard businesses and consumers.
Findings of the PSR’s Investigation
The PSR’s market review revealed that Mastercard and Visa raised cross-border interchange fees fivefold between 2021 and 2022—debit card fees increased from 0.2% to 1.15%, and credit card fees from 0.3% to 1.5%. The regulator found:
- Lack of competition: Mastercard and Visa were not subject to effective constraints, enabling unjustified fee hikes.
- High costs for businesses: The fee increases burdened UK businesses with hundreds of millions in additional costs.
- No clear justification: Neither card network provided evidence to support the need for the fee increases, nor demonstrated that pre-increase levels were inadequate.
David Geale, Managing Director of the PSR, stated, “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. We are consulting on options for capping prices to ensure UK businesses get a better deal.”
Proposed Price Cap to Protect Businesses
To address the issue, the PSR has launched a consultation on implementing a price cap in two stages:
- Interim Cap: A short-term cap would reset fees to pre-2021 levels or other justified rates while long-term measures are developed.
- Long-Term Solution: The PSR will conduct further analysis to determine a sustainable methodology for regulating fees.
Stakeholders, including businesses and industry representatives, are invited to submit evidence and feedback on the proposals until February 7, 2025.
Impact of Brexit on Fee Regulation
The fee increases followed the UK’s exit from the EU, which removed the regulated caps on outbound cross-border interchange fees previously in place. These fees are paid by UK businesses when processing online transactions made with EEA-issued cards, such as a French customer purchasing goods from a UK retailer.
Next Steps
Based on consultation feedback, the PSR will decide whether to implement an interim cap and at what level. A final remedies notice for the initial cap is expected next year, with a long-term cap methodology to follow.
This proposed intervention aims to foster fair competition, reduce costs for businesses, and ensure the UK payments system remains efficient and equitable for all participants.
