Payments watchdog proposes cap to Visa and Mastercard cross-border charges

Wed 13 Dec 2023
Posted by: William Barns-Graham
Trade News

A UK financial watchdog has proposed capping cross-border charges on credit and debit card transactions.

The Payment Systems Regulator oversees financial transfers and has said that the cap would “protect UK businesses from overpaying on these interchange fees”, the FT reports.

It estimates that UK businesses have paid an extra £150-200m due to recent fee increases, particularly from Visa and Mastercard.

‘Unduly high’

“The PSR has set out its provisional concerns that Mastercard and Visa have likely raised these fees to an unduly high level, at the expense of UK businesses,” the watchdog said, citing post-Brexit charges of 1.15% for debit cards and 1.5% for credit cards.

It said fees on transaction between the UK and European Economic Area (EEA) should be capped at 0.2% for debit cards and 0.3% for credit cards.

"In short, at this stage, we do not think this market is working well," PSR managing director Chris Hemsley said in a statement reported by the Independent.

“Our interim report sets out a range of potential solutions which could be implemented.

“They are designed to make sure cross-border interchange fees are set at a level that better reflects the interests of all Mastercard and Visa users.”

‘Unjustified’

A Visa spokesperson told Reuters that the cap would be “unjustified”, saying:

"Accepting reliable, secure, and innovative digital payments represents enormous value to UK businesses, especially when selling overseas.

"These interchange rates apply to less than 2% of UK card payments - European (EEA) cardholders buying online from a UK seller - and reflect the fact that these transactions are more complex and carry far greater risk of fraud."

A Mastercard spokesperson also said the current interchange fees represent fair value.

The PSR has invited industry feedback on its proposals by the end of January before the publication of a final report at the end of quarter 1 in 2024.

Alternative needed?

The government recently commission a report into digital payments that called for the UK to ensure it has a “national strategy” to ensure major international players in the industry “contribute positively to the payments landscape”.

The ‘Future of Payments Review’, published in November 2023, stated:

“With MasterCard, Visa, Google and Apple now having such a strong position in UK payments, Government could consider developing a point of view on having so much of our payments landscape open internationally.

“The view from this review is that the current international players are enhancing the consumer experience and are well placed to contribute positively to the payments landscape – but the absence of a national strategy and position on this feels like a gap.”

The report added, however, that there were concerns that the UK financials services sector was “sleepwalking into the hands of Big Tech”.