Britain’s payment regulator has set out proposals to cap cross-border interchange fees charged by Mastercard and Visa after raising concerns that they have been hiked to “an unduly high level”.
The Payment Systems Regulator (PSR) said a cap would protect UK business from overpaying on fees charged on transactions made between the UK and European single market.
The group said UK firms paid an extra £150million to £200million last year alone due to significant fee increases pushed through by the card firms in 2021 and 2022.
The PSR said its market review looking at interchange fees charged since Brexit, when the European Union‘s rules on payments stopped applying to the UK, suggest that the market is “not working well”.
Chris Hemsley, managing director at the Payment Systems Regulator, said: “In this market review we have provisionally found that the fees charged by Mastercard and Visa to UK businesses which accept payments from within the European Economic Area are likely too high.
“In short, at this stage, we do not think this market is working well. Should we ultimately conclude this is the case, our interim report sets out a range of potential solutions which could be implemented.
“They are designed to make sure cross-border interchange fees are set at a level that better reflects the interests of all Mastercard and Visa users.
“We are also considering the longer-term outcomes so we can determine how we may need to adapt these fees in future.”
VISA said in response to the PSR review: “We strongly dispute the findings of the PSR’s interim report and believe that the proposed remedies are not justified.
“Accepting reliable, secure, and innovative digital payments represents enormous value to UK businesses, especially when selling overseas.
“These interchange rates apply to less than two percent of UK card payments – European (EEA) cardholders buying online from a UK seller – and reflect the fact that these transactions are more complex and carry far greater risk of fraud.”
Every time a person uses a Mastercard or Visa debit or credit card issued in the EEA for online retail transactions with UK businesses, UK businesses have to pay cross-border interchange fees.
The PSR warned that UK businesses have “little choice” but to pay the increased fees as Mastercard and Visa cards account for nine out of every 10 online transactions at UK businesses with EEA-issued cards.
The regulator is inviting feedback on its provisional findings and the proposed cap from anyone with an interest in the issue. This includes issuers, acquirers, card scheme operators, businesses, and cardholders. Feedback can be sent in until January 31, 2024.
The latest GDP figures released today indicate many UK businesses are struggling, with the economy experiencing zero growth in the three months to October 2023.
Jo Smedley, director at Grimsby-based games business, Red Herring Games, said: “2023 has been our toughest year on record.
“The energy crisis, the slow post-pandemic recovery and the need to start paying back Covid loans before the retail and events industry had fully recovered from Brexit and Covid have been tough.
“Add to that the increased costs of the minimum wage and the ‘not quite recession’ that everyone is worrying about, and you have a perfect storm for small businesses.The not quite recession could potentially turn into one based on this evidence.
“Cashflow has been especially tough this year. Everything costs more to buy in, and sales aren’t as strong as they were prior to Covid yet. In the closing stages of the year, fortunately, sales have been increasing.”
Jenny Blyth, owner of London-based Storm in a Teacup Gifts, said rising costs this year have made her feel “stress like I’ve never known”.
She said: “In a usual year, I find that September and October are my busiest months but this has now changed. Last year November was busy and this year people have waited until December to do their shopping.
“The public is struggling and waiting until the last minute to spend what little they have, which in turn means my cash flow is low right up to the very end of the year, just in time to do my tax return. This isn’t a way to live and finding a second job seems to be the new norm.”
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