UK’s Payment Systems Regulator or PSR provisionally proposed to introduce a price cap on cross-border interchange fees on credit and debit cards, mainly of U.S. payment tech majors Mastercard Inc. and Visa Inc. With this, the regulator aims to protect UK businesses from overpaying on these interchange fees.
PSR, which published the interim report for its market review into cross-border interchange fees, said it has set out its provisional concerns that Mastercard and Visa have likely raised these fees to an unduly high level in online retail payments between the UK and the European Economic Area or EEA.
An interchange fee is what acquirers pay to issuers each time a card is used to buy goods or services. According to the regulator, UK businesses pay cross-border interchange fees each time a Mastercard or Visa debit or credit cards issued in the EEA, is used for online retail transactions with UK businesses.
Visa and Mastercard have increased the interchange fees on online purchases made by EEA consumers at UK businesses and vice versa fivefold. For debit cards, this has been raised to 1.15% from 0.2%, and for credit cards to 1.5% from 0.3%.
At present, Mastercard and Visa cards account for 9 out of 10 online transactions at UK businesses using EEA-issued cards, and UK businesses have little choice but to pay the increased costs.
Regarding its proposal to introduce a price cap on fees, PSR said it could be done in two stages, subject to its final report and further consultation on remedies.
This includes an initial time-limited cap of 0.2% for UK-European Economic Area or EEA consumer debit transactions and 0.3% for consumer credit transactions -where the transactions are made online at UK businesses.
Further, there could be a lasting cap on these interchange fees in the future, once further analysis has been carried out to establish an appropriate level.
PSR said it has been examining the level of these fees after Mastercard and Visa significantly raised some of these fees in 2021 and 2022, to understand whether they, or other factors, indicate the market is not working well.
In 2022 alone, the PSR estimates that UK businesses paid an extra 150 million pounds to 200 million pounds due to the fee increases.
The agency is now seeking views on its provisional findings and proposed approach to remedies to help inform the final report.
The window for giving feedback is open until January 31, 2024.
The PSR intends to publish its final report on cross-border interchange fees in the first quarter of fiscal 2024.
If the PSR concludes the market is not working well and it warrants intervention, this report will be followed by a consultation on the remedy package, it said.
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