Payments regulator rules card scheme interchange fees ‘unduly high’

The UK’s Payments System Regulator (PSR) has ruled a lack of competition allowed Mastercard and Visa to impose “unduly high” fees on cross-border card payments in a report published today.

The final report on the PSR’s market review of cross border interchange fees confirms the regulator’s earlier findings that “unjustified” increases in fees since the UK left the EU are costing businesses £200 million a year and it has proposed a price cap.

These interchange fees are set by card schemes Visa and Mastercard and paid by UK merchants – including travel, hospitality and retail businesses – when accepting payments from customers with cards issued in the European Economic Area (EEA).

The report’s findings appear to support the ongoing class action claims against Mastercard and Visa for repayment of fees on commercial card payments to UK travel, hospitality and retail businesses.

The Competition Appeal Tribunal (CAT) gave the go-ahead in August for collective proceedings against Mastercard and Visa for compensation for the multilateral interchange fees (MIFs) charged on commercial card transactions since June 2016.

The PSR report found Mastercard and Visa benefited from a lack of competition which allowed the imposition of costly increases in fees without clear justification.

It concluded: “Mastercard and Visa were not subject to effective competitive constraints, allowing them to increase their fees to an unduly high level.

“Mastercard and Visa raised their fees without regard to the potential impacts on or interests of businesses and their customers.”

The PSR found these increases “are costing businesses £150 million to £200 million extra annually”, and it could “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.”

The British Retail Consortium (BRC) welcomed the report’s findings and the proposal for a price cap, noting in a statement: “This follows representations from businesses organisations, including the BRC, which have long called out the dysfunction in the payments market.”

BRC payments policy advisor Chris Owen 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 excessive price hikes in cross-border interchange fees are hurting retailers.

“Retailers paid £1.64 billion in card fees last year, and cross-border interchange fees were a contributor.”

He said: “We look forward to engaging with the PSR to ensure the price cap is set at a fair level. We would urge that the rate be set to 0% until retailers recoup the extra costs paid since the increases were introduced.”

Owen added: “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.”

A Visa spokesperson said: “We continue to dispute the overall findings of the PSR and it will be important to ensure that any measures do not lead to uncertainty and unintended consequences, which could jeopardise the UK’s leading status as a competitive, thriving and innovative payments ecosystem.

“Accepting reliable, secure, and innovative digital payments represents enormous value to UK businesses, especially those selling overseas, and drives economic growth, as acknowledged by the UK government in the recent National Payments Vision.”

The spokesperson added: “The rates under discussion are based on those mutually agreed with the European Commission following extensive engagement.

“In agreeing the rates, the EC recognised that there is additional complexity and risk with e-commerce cross border transactions.”