UK Regulator Proposes Cap on Mastercard, Visa Interchange Fees

A proposed cap on cross-border interchange fees charged by Visa and Mastercard aims to avoid businesses overpaying after Brexit eliminated fee limitations applied in the EU.

UK Regulator Proposes Cap on Mastercard, Visa Interchange Fees

Britain’s Payment Systems Regulator (PSR) on Wednesday, Dec. 13, provisionally proposed a cap on cross-border interchange fees charged by Mastercard and Visa on credit and debit card transactions between the UK and European single market. The cap is expected to protect UK businesses from overpayments.

The proposal is based on the regulator’s previously issued interim report. The final cap introduction will be based on the PSR’s final report and further consultation on remedies. Per the initial proposal, the initiative will be implemented gradually:

  1. Initially, the regulator wants to introduce time-limited cap of 0.2% for UK-European Economic Area (EEA) consumer debit transactions and 0.3% for consumer credit transactions made online at UK businesses.
  2. PSR performs further analysis to establish an appropriate level of interchange fee cap and introduce it on a long-term basis.

Cross-border interchange fees apply when people use Mastercard or Visa debit or credit cards issued in the EEA for online retail transactions with UK businesses. Mastercard and Visa significantly raised some of these fees in 2021 and 2022. Therefore, the PSR has been examining the fee level and their rationality ever since.

The regulator made preliminary conclusions that Mastercard and Visa have likely raised these fees to an unjustified level, largely at the expense of UK businesses. The PSR estimates that UK businesses paid an extra £150-200 million in 2022 due to the fee increases.

The issue at stake is crucial for UK businesses since Mastercard and Visa cards account for 90% of online transactions they accept using EEA-issued cards.

Currently, the PSR is looking for stakeholders’ feedback on its provisional findings and proposed approach to remedies. Therefore, anyone with an interest in online retail payments between the UK and EEA, particularly issuers, acquirers, card scheme operators, businesses, and cardholders, are welcome to provide their feedback on the issue until 31 January 2024.

History of Mastercard and Visa Fees Lawsuits

Mastercard and Visa have continuously faced legal repercussions over their interchange fees. In February 2023, UK law firm Harcus Parker decided to file a lawsuit with the Competition Court of Appeal (CAT) on behalf of British firms, claiming that Visa and Mastercard determine the number of exchange fees, focusing not on market circumstances, but on their own benefit contrary to objective factors. The expected compensation might have amounted to more than 7.5 billion pounds.

In March 2023, the federal appeals court approved the settlement of a class action lawsuit against Visa and Mastercard that started 15 years ago. Sellers blamed Visa and Mastercard for the financial damage linked to the charging of super-competitive fees for transactions on payment cards. As part of this agreement, the card companies agreed to pay $5.6 billion to 12 million sellers who initiated antitrust proceedings.

The fintech firm Block (former Square) also filed an antitrust lawsuit against Visa and Mastercard with the US District Court for the Eastern District of New York this July. The company states that the two payment giants have artificially inflated so-called swipe fees, resulting in increased retail expenses for end consumers.

Nina Bobro

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Nina is passionate about financial technologies and environmental issues, reporting on the industry news and the most exciting projects that build their offerings around the intersection of fintech and sustainability.