UK businesses are suffering from the rise of cross-border interchange fees according to payments regulator, The Payments System Regulator (PSR). To ensure this doesn’t continue, it has proposed a consultation to price cap remedy to protect firms.
In December 2023, the PSR published its interim report that set out a provisional view of the market’s current efficiency. A year later, it has published its final report of its market review on high cross-border fees, revealing that Mastercard and Visa were not subject to effective competitive constraints, and consequently have been able to hike their fees.
Reflecting on the trends found in recent years, Mastercard and Visa raised their cross-border interchange fees fivefold from 0.2 per cent to 1.15 per cent for debit cards and 0.3 per cent to 1.5 per cent for credit cards over the course of 2021 and 2022.
The PSR also found in its latest report, that Mastercard and Visa raised their fees without regard to the potential impacts on or interests of businesses and their customers. It found that the increases cost businesses £150-200million extra annually.
Additionally, the PSR did not identify any justifications for the increases. Mastercard and Visa were not able to show that they undertook any specific assessment when deciding to increase their fees and the PSR has seen no evidence that the pre-increase fee levels were not working.
David Geale, the PSR’s managing director said: “Cards are a popular way we make payments in the UK. 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, costing UK businesses hundreds of millions of pounds.
“We have carefully considered the feedback we have received. We consider that consulting on a range of options for capping prices is the best way forward to ensure UK businesses get a better deal, and as such, we look forward to receiving evidence on these proposals from all interested parties.”
What’s next?
Alongside the final report, the PSR is launching a consultation on implementing a price cap remedy, to prevent businesses from overpaying these fees any longer.
Subject to the outcome of the consultation, the PSR is proposing to intervene in two stages.
The PSR is consulting on whether to introduce a short-term, interim cap on fees and if so, at what level. It has suggested a range of options, including the levels that were in place before the schemes raised fees, as well as levels that could allow issuers to cover the costs of a transaction. However, the PSR is keen to hear views, supported by evidence, on other potential levels. This cap would be set for a limited period while further analysis is conducted to determine an appropriate methodology and level for a longer-lasting cap.
The PSR is collecting feedback on its consultation until 7 February and encourages all interested parties to contribute evidence. If the PSR decides a phased approach to a cap is appropriate, it will publish a final remedies notice on the proposed initial price cap next year and a proposed methodology for developing a lasting cap at a later date.
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