A lack of competition allowed Mastercard and Visa to increase their cross-border interchange fees to an unduly high level. Following detailed analysis and extensive engagement, the UK Payment System Regulator (PSR) finds increases in cross border interchange fees since 2021/2022 are costing businesses £150-200 million extra per year. The regulator is therefore consulting on whether to introduce an interim cap on fees and at what level.
The PSR has today published the final report of its market review into cross border interchange fees. The report finds that the high level of fees is harming businesses, so the PSR is also publishing a consultation on a proposed price cap remedy that seeks to protect UK businesses from overpaying these fees.
Over the course of 2021 and 2022, Mastercard and Visa raised their cross-border interchange fees fivefold from 0.2% to 1.15% for debit cards and 0.3% to 1.5% for credit cards. The PSR finds that this was harmful to the interests of UK businesses and ultimately their customers.
The PSR published its interim report in December 2023, setting out its provisional view that this market is not working well. Following further engagement and analysis, today’s final report, confirms this.
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. We look forward to receiving evidence on these proposals from all interested parties.”
What has the PSR found?
Since publishing its interim report, the PSR has carefully considered all feedback received and continued to engage extensively with industry.
The PSR’s key findings include:
A lack of competition: Mastercard and Visa were not subject to effective competitive constraints, allowing them to increase their fees to an unduly high level.
Costly increases: Mastercard and Visa raised their fees without regard to the potential impacts on or interests of businesses and their customers. The PSR found that the increases are costing businesses £150-200 million extra annually.
Unclear rationale: 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.
What action is the PSR proposing?
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. The PSR has suggested a range of options for this, 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 February 7th 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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