Today, the Payments System Regulator (PSR) has published its final report into its market review of cross border interchange fees. Cross border interchange fees are currently set by card schemes and paid by UK merchants when accepting payments from EEA customers.
The report confirms its earlier findings that the unjustified increases in these fees since the UK left the EU[1] are harming businesses at a cost of £200 million per year. The PSR is now proposing to introduce a price cap to protect UK businesses from further price increases.
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.”
We welcome the findings of the report and the proposal to introduce a price cap. This follows representations from businesses organisations, including the British Retail Consortium, who have long called out the dysfunction in the payments market, which harms businesses. The recent BRC Annual Payments Survey showed that 85% of spending is made using credit or debit cards in the UK. This outlines the vital importance of card payments to the UK economy.
Chris Owen, Payments Policy Advisor at the British Retail Consortium, said:
The Payment Systems Regulator has confirmed what businesses have long known – that the cards payment market is broken and needs fixing. The lack of competition between the dominant card schemes and the unjustified, excessive price hikes in cross-border interchange fees are hurting retailers. The proposed price cap to address this is welcomed by the retail industry.
Retailers paid £1.64 billion in card fees last year, and cross-border interchange fees were a contributor to this. We look forward to engaging with the PSR to ensure the price cap is set at a fair level in both the short and the longer term, and we would urge that the rate for fees be set to 0% until retailers recoup the extra costs paid since the increases were introduced. We now urge the Treasury to conduct a full review of interchange fees to assess whether they are even fit for purpose in the UK market.”
-ENDS-
[1] In 2021 and 2022 alone they rose fivefold without any justification.