The UK’s payments regulator is proposing a cap on cross-border card fees after expressing ‘concerns’ over recent hikes to fees by both Visa and Mastercard.

The Payment Systems Regulator (PSR) is launching a consultation on implementing a price cap remedy, to prevent businesses from overpaying excessively high cross-border 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, according to the PSR, which warned the fee hikes were costing businesses £150-200m extra annually, a rise that is “harmful to the interests of UK businesses and ultimately their customers.”

“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,” said David Geale, the PSR’s Managing Director.

“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.”

Since the UK left the EU, previous EU-regulated caps on these outbound cross-border interchange fees ceased to apply, and both Mastercard and Visa upped fees for the UK.

But Mastercard rejected that the fee changes were connected to Brexit, adding: “While Brexit provided the legal ability to increase rates, the justification for the increase pre-dates Brexit.”

The payments giant said “fraud differentials do justify and explain the increases” in fees, adding that the legal basis on which the PSR plans to impose a cap should be called into question.

“Mastercard does not believe that the PSR has the requisite powers…to impose a price-cap remedy, whether as an interim or longer-term remedy. Accordingly, the legal basis for the proposed interim remedy is incorrect and cannot be regarded as appropriate for that reason,” the firm said.

The PSR is proposing to intervene in two stages. It 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.

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 consultation closes on 7 February 2025.

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