UK Regulator Proposes: In a bid to safeguard businesses from potential overcharging, the Payment Systems Regulator (PSR) in Britain has put forth a provisional proposal to cap cross-border interchange fees imposed by payment giants Mastercard and Visa on transactions between the UK and the European single market. This move follows the publication of interim findings from a market review conducted by the PSR, focusing on the interchange fees charged since the UK’s departure from the European Union (Brexit), which marked the end of the longstanding fee cap applicable in Britain.
The PSR’s review honed in on the charges set by Mastercard and Visa, both major players accounting for a whopping 99% of debit and credit card payments in the UK. According to the interim findings, these companies are believed to have increased fees to what the PSR deems an “unduly high level,” resulting in an estimated additional cost of £150-200 million ($190-250 million) for UK businesses due to fee hikes in the previous year.
Chris Hemsley, the Managing Director of the PSR, stated, “In short, at this stage, we do not think this market is working well.” The regulator’s proposal involves the implementation of an initial time-limited cap, set at 0.2% for UK-European Economic Area debit transactions and 0.3% for credit transactions. A permanent cap would then be instituted after further analysis.
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Visa, however, has strongly contested the findings and the proposed remedies, stating that they are “not justified.” A spokesperson for Visa emphasized the value of accepting reliable, secure, and innovative digital payments, particularly for UK businesses engaged in international sales. They argued that the proposed interchange rates apply to less than 2% of UK card payments and reflect the complexity and increased risk of fraud associated with these transactions.
The PSR is now seeking feedback on these proposals until the end of January. A final report based on this feedback is expected to be released in the first quarter of 2024. This development aligns with the UK government’s growing acknowledgment of the need for a “digital alternative” to the reliance on Visa and Mastercard, irrespective of the PSR’s actions. A government-commissioned report in the preceding month underscored the importance of developing a homegrown alternative to these American payment giants, echoing sentiments expressed in the European Union. However, such an alternative is yet to materialize.