PSR Proposes Limits On Cross-Border Interchange Fees

The United Kingdom’s Payment Systems Regulator (PSR) has suggested a limit on cross-border interchange fees and is asking for feedback on how high the cap should be set. This proposal follows a final report from the PSR’s market review, which found that Mastercard and Visa increased cross-border interchange fees by five times in 2021 and 2022.

The PSR reported that these increases cost U.K. businesses an extra £150 million (about $190 million) to £200 million (about $253 million) each year.

PSR Faces Pushback Over Proposed Cap On Interchange Fees

In a press release issued on Friday, Dec. 13, PSR Managing Director David Geale stated that a lack of competition allowed Mastercard and Visa to raise these fees to unreasonable levels. Geale explained that these higher fees have significantly impacted U.K. businesses, costing them hundreds of millions of pounds.

Mastercard responded to the PSR’s proposal in an emailed statement to PYMNTS. A spokesperson said the company welcomed the PSR’s willingness to work with the industry and planned to continue discussions with the regulator.

The spokesperson added that the payments industry is now more competitive than ever. According to the statement, setting artificial controls on interchange fees may not reflect the current market and could reduce the value that people and businesses get from card payments.

Visa did not immediately reply to PYMNTS’ request for comment. However, in a statement to Bloomberg, Visa disagreed with the PSR’s findings. The company stated that any new measures should avoid causing uncertainty or unintended problems.

This announcement followed a Bloomberg report that European lawmakers asked the PSR to reconsider its plan to cap interchange fees, a cap that had been removed after Brexit.

Politicians and financial institutions in the European Union argued that the proposed cap would unfairly affect European banks. They described the proposal as “clear discrimination” against EU-based banks.

PSR Seeks Fair Solutions Amid Fee Cap Debate

Geale, in the PSR’s press release, stated that the regulator had carefully reviewed the feedback it received. He explained that consulting on different options for capping fees was the best way to ensure fair pricing for U.K. businesses. Geale encouraged all interested parties to share evidence and opinions on the proposals.

The PSR’s proposal highlights ongoing concerns about the lack of competition in the payments sector. The regulator’s findings revealed that Mastercard and Visa used their market power to set higher fees, which increased costs for businesses. These higher fees ultimately impact consumers who rely on card payments for purchases.

The PSR’s decision to seek input on fee limits shows its effort to balance fair pricing and industry needs. However, the debate continues, with Mastercard and Visa defending their fee structures and warning against potential risks of fee caps. Meanwhile, European lawmakers are pushing back, arguing that the new cap could harm European banks.

The PSR’s goal is to ensure that businesses in the U.K. are treated fairly and do not suffer from high fees due to limited competition. The regulator expects feedback from various stakeholders to help set a reasonable cap that benefits businesses while maintaining a stable payment system.