The UK’s Payment Systems Regulator (PSR) is addressing recent fee hikes by card companies Visa and Mastercard, proposing a cap on cross-border card fees.
- Over 2021-2022, Visa and Mastercard increased cross-border fees significantly, affecting UK businesses by adding £150-200 million annually in extra costs.
- Previous EU-regulated fee caps no longer apply post-Brexit, allowing these fee hikes that the PSR deems excessive and harmful.
- The PSR is opening a consultation to explore implementing a cap on these fees and considering a range of short-term options.
- Mastercard contests the PSR’s authority to impose such a cap, citing legal and business justifications for the fee increases.
The UK’s Payment Systems Regulator (PSR) is taking action in response to concerns over cross-border card fee increases implemented by Visa and Mastercard. These increases have placed a significant financial burden on UK businesses, with extra costs estimated between £150-200 million annually.
In the period from 2021 to 2022, both Visa and Mastercard substantially increased their cross-border interchange fees. Specifically, these fees rose from 0.2% to 1.15% for debit cards and from 0.3% to 1.5% for credit cards. The PSR has observed that such hikes have been detrimental to the interests of UK businesses by increasing operational costs that are ultimately passed on to customers.
Since the UK’s departure from the EU, prior fee caps regulated by the EU ceased to apply, providing Visa and Mastercard the latitude to elevate these fees. However, Mastercard disputes that this adjustment was directly due to Brexit. The company argues the fee hikes are justified by “fraud differentials” and predate the UK’s EU exit.
In response, the PSR proposes a statutory consultation aimed at implementing a capped price structure for these fees. The regulator is evaluating a range of options which includes reverting to the pre-hike fee levels as a possible short-term measure. This interim cap is planned while a more detailed analysis is undertaken to establish a suitable long-term solution.
Mastercard, however, questions the legality of the PSR’s authority to enforce such caps, stating, “Mastercard does not believe that the PSR has the requisite powers” to mandate price limits, citing inaccuracies in the proposed legal basis.
The PSR’s consultation will be open until 7 February 2025, and it represents an attempt to ensure fairer cost structures for UK businesses engaging in international transactions.
This initiative by the PSR seeks to alleviate financial pressures on UK businesses due to increased cross-border fees.
