UK Regulator to Review Visa, Mastercard’s Processing and Swipe Fees

The U.K. Payment Systems Regulator (PSR) published on Tuesday (June 21) details of two market reviews that is planning to conduct later this year on Visa and Mastercard’s processing fees and cross-border interchange fees.

The first market review, on scheme and processing fees, stems from a previous market review carried out by the PSR on the card-acquiring market. In that market review, the regulator found that fees paid by acquirers had increased from 2014 to 2018. In January 2022, the regulator published its initial remedies in the market to make it more transparent and to allow acquirers to negotiate better terms with the card networks. However, the regulator still wants to examine the levels, structure and types of scheme and processing fees. This new market review will build on the card-acquiring market review, the regulator said.

“Cards are the most popular way for consumers to make a payment. To accept card payments, merchants must pay certain fees which can ultimately impact the cost we all pay for goods and services. We want to understand whether card payments are working well and to make sure that merchants, and ultimately consumers, get a good deal,” said Natalie Timan, head of strategy at PSR.

The second market review, on Visa and Mastercard’s cross border interchange fees, may not come as a surprise to many, as the recent increases on this type of fees since the U.K. left the European Union, five times higher now according to the regulator, already raised some flags at the PSR. In an interview with PYMNTS in March, Andrew Self, senior policy manager at the PSR, already mentioned that the card-acquiring market review revealed that cross-border interchanges fees have increased over the years and this, for the PSR “poses important questions around whether there are sufficient competitive constraints on card schemes.”

Read more: UK Payment Regulator Says Card Payments, Open Banking, Big Tech on 2022 Agenda

Before the U.K. left the European Union, domestic U.K. transactions and U.K.-EU transactions were subject to caps under EU interchange fee regulation. These limits were 0.2% of the value of the transaction for debit cards, and 0.3% for credit cards. In January 2021, this regulation ceased to apply in the UK and Visa and Mastercard changed some of their fees. The purpose of this cross-border interchange fee market review is, according to the regulator, “to understand the rationale for the increases and whether the card scheme operators’ ability to increase these fees is an indication that the market(s) or aspects of market(s) is not working well.”

The PSR has chosen to focus both market reviews on Visa and Mastercard as they account for 99% of debit and credit card payments in the U.K. The regulator has concerns that the companies’ increases on fees may harm competition, innovation and service-users.

In terms of possible outcomes from the market reviews, unlike other regulators that can impose hefty fines or structural remedies, the PSR can only impose lighter remedies. For instance, the regulator can impose some measures that would promote effective competition like making general or specific directions, requiring the operation to change operating rules, making recommendations and if the case needs to be escalated, the PSR can make a market investigation reference to the Competition and Markets Authority to investigate a market.

For the time being, the PSR has just published a draft of the market review and it is accepting comments on these terms of reference (ToR) until Aug. 2. Once the regulator receives comments from stakeholders, it will publish the final ToR for the market review in Autumn 2022.

Read also: UK Payment Regulator to Close Card-Acquiring Consultation With Remedies in Sight