Summary

On 13 December 2024, the PSR published a consultation paper (CP24/14) on remedies connected to its market review into cross-border interchange fees paid by acquirers to issuers for online transactions between the UK and the European Economic Area (EEA). The consultation accompanies the PSR's final report on its market review into UK-EEA consumer cross-border interchange fees.

PSR consultation on price caps for UK-EEA cross-border interchange fees

Following the UK's withdrawal from the EU, the EU price caps on UK-EEA transactions no longer applied and the interchange fees were increased fivefold by issuers from 0.2% to 1.15% for card not present (CNP) consumer debit transactions, and from 0.3% to 1.5% for CNP consumer credit transactions. Identifying these fees as excessively high, negatively affecting merchants and by pass-through their customers, the consultation paper aims to introduce a remedy of price caps on UK-EEA interchange fees.

The PSR proposes a price cap remedy in two stages:

• Stage 1: An initial, time-limited cap for a transitional period to allow for the development and implementation of a methodology to determine the most suitable level for a permanent price cap. The PSR is considering setting this cap at 0.2% for CNP consumer debit transactions and 0.3% for CNP consumer credit transactions.
• Stage 2: During the initial cap period, the PSR plans to work on establishing a longer-term cap, which could be adjusted based on regular reviews and might be higher or lower than the initial cap.

So what?

As the PSR has reiterated its commitment, in principle, to impose a price cap set at an interim level in a two-staged approach, firms should be aware of what that may mean for their business going forward:

• Risk of disruption to business: In the consultation, issuers argued that a two-stage approach to a remedy would cause double the disruption, double the cost, and would exacerbate uncertainty as to the level of fees long-term. The PSR has accepted that a two-staged approach will create a degree of business disruption but argues that as long as sufficient notice (at least six months) of changes to interchange fees is provided, the costs to participants would not be high enough to preclude the imposition of a stage 1 price cap remedy, which it believes would provide certainty while a stage 2 cap is being developed. Firms should therefore evaluate how this change would impact their business and prepare to mitigate the disruption and costs that may follow.
• The level of price caps set: The consultation reveals the polarisation between the views of issuers and card schemes and that of those of merchants and acquirers on what would be an acceptable level for interchange fees. Issuers and card schemes have argued that they do not support any price cap remedy and have even disputed the PSR's power to implement one. However, merchants and acquirers regard a price cap as essential, and have even suggested a negative interchange fee as compensation for the excessive fees currently charged. The PSR continues to consult on what an appropriate level would be, and businesses should respond with evidence and reasoning to help ensure that any price cap level aligns with their interests.

The PSR continues to consult on whether a two-stage price cap would be appropriate and what an appropriate stage 1 price cap would be. Responses to the consultation should be made by 5pm on 7 February 2025. If the PSR is still minded to proceed with a two-stage price cap then it will issue a statutory remedies consultation with its proposal for a stage 1 price cap. If it is not minded to proceed, then the PSR will publish its reasons why and next steps.