The payments watchdog has proposed capping the fees that credit card companies such as Mastercard and Visa charge retailers for payments between the EU and the UK.
The charges, which can be passed on to consumers, cost UK businesses an extra £150 million to £200 million last year, the Payments Systems Regulator (PSR) said.
Payments giants have likely increased fees to an “unduly high level” since Brexit, the regulator has suggested.
However, the companies disputed this claim, with Visa saying a cap was “not justified”.
The European Union (EU) has capped “cross-border interchange fees”, which retailers pay when British customers shop within the European trading bloc.
The cap also applied to the United Kingdom, before Brexit.
But since the UK left the EU, Mastercard and Visa have “significantly increased” the fees charged to retailers in Britain, the watchdog found.
Large UK businesses can absorb these fees, but smaller businesses can pass them on to UK and EU consumers, a PSR spokesperson said.
“In short, at this point, we don’t think this market is working well,” said Chris Hemsley, PSR’s chief executive.
The watchdog has proposed an initial, time-limited cap of 0.2% for debit card transactions and 0.3% for credit cards for transactions made online at UK businesses . This would be in line with the EU cap.
Visa, however, strongly disputed the conclusions of the PSR’s interim report and said its proposals were “not justified”.
“Accepting reliable, secure and innovative digital payments represents huge value for UK businesses, particularly when selling overseas,” a spokesperson said.
The fee applies to less than 2% of card payments in the UK – European Economic Area cardholders purchasing online from a UK seller – “and reflects the fact that these transactions are more complex and carry a much greater risk of fraud,” they added.
Mastercard said the fees provide value in a competitive market.
“We disagree with the PSR’s findings and will continue to advise them on the critical importance of electronic payments to the UK economy,” a spokesperson said.
The PSR has requested feedback on the proposals before the end of January, with a final report expected in the first three months of 2024.
Last month, a report commissioned by the British government said Britain needed a “digital alternative” to rely on US payments giants, echoing the EU’s long-standing ambitions to a “local” alternative.
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