UK Payments Regulator Proposes Reduction in Cross-Border Card Fees
The UK Payment Systems Regulator (PSR) has proposed to reintroduce a cap on cross-border interchange fees levied on transactions between the UK and the EU, following an investigation launched in June 2022.
In a press release, the PSR’s Managing Director Chris Hemsley commented that “we do not think the market is working well” and that “the fees charged […] are likely too high”. The PSR’s findings are preliminary at this stage and it is seeking feedback through 31st January 2024.
The PSR estimates UK businesses spent an additional £150-200mn on increased cross-border card fees in 2022, with UK merchants paying interchange fees of 1.15% and 1.5% for debit and credit card transactions from EU-based consumers respectively. It is not known exactly what the PSR intends to do with these fees, but the PSR has suggested they may decrease them to the EU’s Interchange Fee Regulations levels of 0.2% for debit cards and 0.3% for credit cards. This would return UK cross-border interchange fees to the level seen pre-Brexit, and would not address unregulated fees such as commercial card interchange fees and scheme fees.
In response to the news, CMSPI’s Chief Economist Callum Godwin said “The PSR’s proposal is positive news for merchants with UK operations because if enacted it returns cross-border fees to pre-Brexit levels. Merchants that have large consumer bases from the EU are likely to see significant fee savings, which should allow them to keep investing in their customer paying experiences. This could be crucial considering the uncertain economic outlook for 2024 and beyond”.
What can merchants do?
If these proposed changes are formalized, merchants with UK operations will want to to ensure the savings are passed on to them. In response to the EU’s interchange fee caps in 2015, a European Commission report conducted by Ernst & Young and Copenhagen Economics concluded that 45% of the benefits of the regulation had been absorbed by the payments supply chain. Additionally, in jurisdictions such as the UK, EU, US and Australia we have seen some evidence suggesting interchange fee savings may be replaced by unregulated fees, particularly scheme fees.
By being proactive and scrutinizing their card fees regularly, merchants can ensure they receive the full benefits of the PSR’s regulatory intervention.