Debate Continues As PSR Drops Interim Cap On Cross-Border Interchange Fees

October 15, 2025
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The UK regulator’s shift away from a temporary cap signals a more deliberate regulatory approach, balancing legal challenges, operational risks and market stability as it works toward a lasting solution.

The UK regulator’s shift away from a temporary cap signals a more deliberate regulatory approach, balancing legal challenges, operational risks and market stability as it works toward a lasting solution.

The Payment Systems Regulator (PSR) has decided not to proceed with an interim cap on UK-European Economic Area (EEA) cross-border interchange fees. Instead, it plans to focus on implementing a single, permanent cap once a robust methodology for setting it has been finalised.

In a statement, the regulator said that although its 2024 market review concluded that capping these fees was the only effective way to mitigate harm to merchants and consumers, it felt that this approach was not the most appropriate course of action. 

“We have decided that the most effective and pragmatic manner to give effect to this conclusion is to implement such a cap in only one step, once our work to determine an appropriate level for UK-EEA cross-border interchange fees has concluded,” the PSR said.

“We now consider it more effective to proceed with a cap only after we have developed a robust methodology and carried out analysis to determine the appropriate level for UK-EEA cross-border interchange fees.”

Post-Brexit challenge

The PSR’s decision marks a change in direction from earlier proposals to impose a temporary limit while work continued to determine a fair cap level. 

The consultation, which closed in February 2025, had sought views on a phased implementation to prevent further harm to merchants facing inflated interchange fees in the period since Brexit.

The issue had become controversial following the UK’s exit from the EU, and was one of the cross-border challenges that regulators and politicians were required to address. 

For example, in mid-2022, the UK’s Treasury Select Committee questioned Visa and Mastercard over their substantial post-Brexit increases in cross-border interchange fees. 

The Committee, made up of cross-party lawmakers, noted that fees for card-not-present transactions between the UK and the EEA had risen from around 0.2 percent to 1.15 percent for debit cards and from 0.3 percent to 1.5 percent for credit cards. 

MPs pressed the card schemes to explain whether these hikes could be justified by higher costs such as fraud or risk, and asked the PSR whether it had seen evidence to support such claims. 

At the time, the Conservative MP Mel Stride, who was then the committee’s chair and is now shadow finance minister, commented: “Recent rises in the fees paid by firms for cross-border debit and credit card transactions add additional costs to businesses, many of whom are already grappling with rising inflation and other cost pressures.”

The ongoing judicial case

One reason for the PSR’s change of plans appears to be legal disputes, with Mastercard, Visa and Revolut all challenging the proposed cap. 

The regulator said it does not expect a judgment before 2026 and that it would be inappropriate to introduce any interim measure while the case is before the courts.

Given the expected delays, the PSR said any interim cap would likely only be in place “for a few months (if at all), instead of up to 30 months as previously expected”, significantly reducing the potential benefits to merchants.

The regulator also warned that pressing ahead with an interim cap could invite further litigation and delay the introduction of a longer-term remedy.

Risk of unintended consequences

The PSR said responses to its consultation, which came from card schemes, issuers, acquirers, merchants and trade associations, highlighted the operational and financial burdens of implementing two caps in close succession.

Respondents warned that multiple fee changes could trigger confusion and instability for merchants, and that acquirers could face higher compliance costs. 

Meanwhile, issuers argued that an interim cap would undermine investment and disproportionately affect non-bank issuers.

The PSR said that the consultation feedback had not given it sufficient evidence to identify the appropriate level for an interim cap, further reinforcing the decision to wait until a full analysis is complete.

“The consultation responses did not provide any new data or evidence to support a specific level for an interim cap, which has constrained our ability to further analyse the potential for unintended consequences from different levels for an interim cap,” the regulator said. 

Merchants vs. issuers

As expected, merchants and trade groups largely supported early intervention to limit fees, whereas issuers and card schemes opposed any cap. 

Merchant respondents called for a return to pre-Brexit interchange levels or lower, arguing that the current post-Brexit rates of 1.15 percent and 1.5 percent are unjustified.

Issuers, however, maintained that any cap below their costs would be harmful, and schemes questioned whether any reduction would ultimately benefit merchants.

They also “questioned the evidential basis for any of the potential levels we proposed in our remedies consultation, and repeated concerns about implementation costs, and also expressed a view that an interim cap would hamper investment and growth and would adversely affect non-bank issuers in particular.”

Meanwhile, the PSR said it heard from an EEA issuers’ trade association, which objected to the principle of the cap on the grounds that it “discriminated against EEA issuers”.

Acquirers were more mixed in their positions on the situation. For example, some remained strongly supportive of a two-stage approach, but others said that they would prefer the PSR to implement the longer-term cap only.

In particular, they noted “the increased costs and inconvenience that successive fee changes would cause for acquirers, and the potential confusion and disruption for merchants.”

Next steps

The PSR said it is now concentrating on developing its methodology for setting the level of a long-term cap, with a consultation on that methodology open until November 21, 2025.

The regulator emphasised that its aim remains to introduce a cap to address the harms identified in its market review, but only once the analysis is “robust and well-evidenced”.

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