Regulators in the UK are weighing a cap on some of the fees that Visa and Mastercard charge local merchants for each card transaction, seeking to rein in charges that have risen fivefold since Brexit.

After a month’s long review, the UK’s Payment Systems Regulator (PSR) said it’s concerned that the payment giants have no effective competition, especially when it comes to the interchange fees they charge UK merchants when a consumer carrying a card issued by a bank in the European Economic Area (EEA) makes an online purchase. 

For now, the PSR is proposing to restore those fees to the pre-Brexit levels of 0.3 per cent of a purchase price for credit cards and 0.2 per cent for debit cards. For credit cards, those fees have risen in recent years to as high as 1.5 per cent, and the PSR estimated that the increases cost UK businesses as much as US$250 million last year. 

The two companies have been under fire from a bevy of regulators and lawmakers around the world for the fees they charge. While it usually amounts to just pennies per purchase, the fees do add up: US merchants spent a record US$160.7 billion on swipe fees last year, up 16.7 per cent from 2021, according to the Nilson Report, an industry publication.

“Cards are the most popular way for consumers to pay for goods and services in the UK and the EEA, so it is crucial that the market works well,” the UK agency said in a statement on Wednesday. 

Shares of Visa and Mastercard fell slightly in early New York trading. Both companies disputed the regulator’s findings. Though the two companies set the level for the fees, it’s the bank that issues the card that collects most of that revenue. 

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

“In an extremely competitive payments market, interchange reflects the value provided to consumers and businesses,” Mastercard said in an emailed statement, adding it will “continue to educate” the regulator.

Visa said the proposed remedies aren’t justified, and noted the interchange rates on EEA online card transactions apply to less than 2 per cent of UK card payments and reflect “the fact that these transactions are more complex and carry far greater risk of fraud.”

“Accepting reliable, secure, and innovative digital payments represents enormous value to UK businesses, especially when selling overseas,” Visa said.

For years, transactions in the UK were subject to price caps introduced by the European Union. After the UK withdrew from the European Union in 2020, those restrictions no longer applied. BLOOMBERG