The Payment Systems Regulator (PSR) has released an interim report shedding light on concerns about the cross-border interchange fees imposed by card schemes on UK businesses. 

The report asserts that existing market dynamics are far from ideal, with fees deemed excessively high.

Highlighting the significance of card payments in the UK, the recent British Retail Consortium (BRC) Annual Payments Survey indicated that 85% of spending occurs through credit or debit cards. This underscores the critical role of card transactions in sustaining the country's economic activities.

Ineffective competition unveiled

The PSR's findings indicate a lack of effective competition in the payments market, especially concerning Mastercard and Visa.

The report suggests these major players face insufficient competitive constraints on the acquiring side, distorting the market to the disadvantage of UK merchants and their clientele.

With both Visa and Mastercard holding sway and a commercial incentive to increase interchange fees on the issuing side, UK merchants engaged in international trade with the European Economic Area (EEA) find themselves with limited alternatives. This lack of choice places a significant burden on businesses incurring these fees.

Impact on businesses and consumers

The consequences are clear: high interchange fees are taking a toll on both UK businesses and consumers.

Merchants, unable to relocate to mitigate these fee increases, are left with the challenging decision to either absorb the additional costs themselves or pass them on to consumers through elevated prices.

PSR proposes price-cap solution

In response to the identified issues, the PSR recommended the introduction of a price cap for UK-EEA outbound consumer payment interchange fees. Such a measure aims to alleviate the financial strain on UK retailers accepting payments from EU consumers.

Industry response and calls for reform

Hannah Regan, payments policy advisor at the BRC, emphasised that the report merely scratches the surface.

“We are seeing high fees across the board, with retailers paying £1.26bn [$1.60bn] to process card transactions last year. We call on the PSR to implement meaningful reforms to increase competition and reduce costs in the payment market.

"Furthermore, [the UK] Treasury should conduct a full review of interchange fees to examine if they are fit for purpose in the UK market.”