PSR publishes working paper on UK-EEA cross-border interchange fee increases

The Payment Systems Regulator published a working paper on 11 January 2023 covering UK-EEA cross-border interchange fees, part of its market review into card fees¹. The paper sets out the regulator's current understanding of how recent increases in UK-EEA card-not-present (CNP) cross-border interchange fees may be affecting UK service users, and invites stakeholder feedback to test that understanding and suggest additional issues to consider¹.

Cross-border interchange fees are the card fees for international transactions where the issuer of the card and the merchant acquirer and/or point of sale location are based in different countries¹. Following the UK's withdrawal from the EU at the end of 2020, the EU Interchange Fee Regulation no longer applies to UK domestic and cross-border transactions between the UK and the EEA¹. The UK interchange fee regulation was introduced in its place for UK domestic card transactions¹.

Shortly after EU withdrawal, Mastercard and Visa increased interchange fees for CNP UK-EEA transactions using consumer debit and credit cards, from 0.2% and 0.3% to 1.15% and 1.5% respectively¹. The review aims to understand the rationale behind those increases for Mastercard and Visa's consumer debit and credit CNP transactions between the UK and the EEA since withdrawal, and the impact they may have on UK service users¹.

The paper is relevant to individuals and groups with an interest in using or making card payments between the UK and EEA, in particular issuers, acquirers, card scheme operators, merchants, and cardholders where the cardholder is not present, such as payments made by phone or online¹. The regulator says cards are the most popular way for consumers to make a payment, and that businesses must pay certain fees to accept card payments which can ultimately affect the cost of goods and services¹.

Why it matters for households

The fees in question are paid by businesses that accept card payments, not directly by shoppers, but the regulator states they can ultimately affect the cost consumers pay for goods and services¹. The increases described apply to card-not-present transactions between the UK and the EEA, which covers online and phone payments rather than payments made in person with a card present¹. The review concerns consumer debit and credit cards issued by Mastercard and Visa¹. The working paper itself does not set out any findings on the size of any effect on prices paid by households; it describes the regulator's current understanding and asks for feedback¹. The paper was amended after publication: the titles of Figures 4 and 6 were changed, and the sentence at paragraph 3.10 was revised to say that the large declines in values and volumes for EEA cards used at UK merchants are not mirrored in the values and volumes for UK cards used at EEA merchants, which followed a different pattern between 2019 and 2021¹.

What happens next

The consultation on the working paper closes at 5pm on Thursday 19 January 2023, and the regulator invites feedback by then, by email or post to its card fee market review team at 12 Endeavour Square, London E20 1JN¹. The regulator says it will continue to engage with stakeholders through further updates, publications and consultations¹. It expects to publish interim findings in the second half of 2023 and a final report by the end of 2023¹. The working paper sits within the regulator's wider work on card interchange and scheme fees and the financial regulation framework that governs payment rules.