British Payment Regulator Calls for Cross-Border Card Fee Cap

Visa and Mastercard are under pressure to cap cross-border merchant fees in the U.K.

The Payment Systems Regulator (PSR) on Wednesday (Dec. 13) published an update to its review of cross-border interchange fees on transactions between U.K. businesses and the European Economic Area (EEA) and is proposing a cap to protect merchants from overpaying.

“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,” Chris Hemsley, the PSR’s managing director, said in a news release. “In short, at this stage, we do not think this market is working well.”

The PSR is proposing an initial, time limited fee cap of 0.2% for consumer debit transactions between the UK and EEA, as well as a 0.3% cap on consumer credit transactions made online at U.K. businesses.

After the U.K. left the European Union, both Visa and Mastercard raised interchange fees for online transactions between the EU and the U.K. to 1.15% for debit cards and 1.5% for credit cards, saying the hike was needed to contend with fraud and increased competition.

In addition to the initial cap, the PSR also calls for a “lasting cap” on these interchange fees after further study determines an appropriate level.

The regulator says it began examining the issue after Mastercard and Visa “significantly” raised some fees in 2021 and 2022.

“The PSR has set out its provisional concerns that Mastercard and Visa have likely raised these fees to an unduly high level, at the expense of UK businesses,” the release said.

“Last year alone, the PSR estimates that UK businesses paid an extra £150-200 million due to the fee increases.”

A Mastercard spokesperson provided a statement saying the company did not agree with the PSR’s conclusions, and will “continue to educate them” on the importance of electronic payments to England’s economy.

“In an extremely competitive payments market, interchange reflects the value provided to consumers and businesses,” the company said. “We enable fast, safe and simple transactions, protect consumers from fraud and help business grow in the UK and across the globe.”

Visa also disputed the PSR’s findings in a statement to PYMNTS.

“Accepting reliable, secure, and innovative digital payments represents enormous value to UK businesses, especially when selling overseas,” the company said.

“These interchange rates apply to less than 2% of UK card payments for European (EEA) cardholders buying online from a UK seller and reflect the fact that these transactions are more complex and carry far greater risk of fraud.”