Mastercard, Visa's High Fees in UK's Crosshairs: Will New Caps Reshape Payment Landscape?

Visa Inc V and Mastercard Inc MA are under scrutiny by U.K. regulators contemplating a cap on some fees charged to local merchants per card transaction. 

This regulatory consideration aims to control the costs that have significantly increased since Brexit, up to five times the original amount. 

The U.K.'s Payment Systems Regulator (PSR) expressed concerns about the lack of effective competition in the interchange fees charged by Visa and Mastercard, especially for online purchases made with cards issued within the European Economic Area (EEA), Bloomberg reports.

The PSR proposes reverting these fees to pre-Brexit levels, which were 0.3% of the purchase price for credit cards and 0.2% for debit cards. 

Currently, fees for credit cards have escalated to as much as 1.5%, leading to an estimated cost of up to £200 million ($250 million) for U.K. businesses in the previous year.

Also Read: Mastercard, Visa Face New Challenges As Fed Explores Debit Card Fee Reductions

Visa and Mastercard have faced global scrutiny from regulators and lawmakers for their fee structures. 

In the U.S. alone, merchants paid a record $160.7 billion in swipe fees in 2022, a 16.7% increase from 2021. 

The PSR's statement highlighted the crucial role of cards as a payment method in the U.K. and EEA, emphasizing the need for a well-functioning market.

Both Visa and Mastercard have disputed the PSR's findings, stating that interchange fees represent the value provided in a highly competitive payments market and that most of this revenue is collected by the banks issuing the cards. 

Visa argued that the proposed remedies are unwarranted, noting that the interchange rates for EEA online transactions apply to a small fraction of U.K. card payments and reflect increased complexity and fraud risk.

The implementation of price caps in the U.K. was previously under EU regulation. However, after the U.K.'s withdrawal from the EU in 2020, these caps no longer applied, leading to the current situation where U.K. transactions face higher fees.

Previous reports indicated the Federal Reserve was eyeing a reduction in the fees merchants pay banks when customers use debit cards for purchases. These fees have been unaltered in the last ten years.

Also Read: Binance Card Holders Brace for Impact as Mastercard and Visa Reassess Ties

Price Actions: V shares traded higher by 0.12% at $259.87 on the last check Wednesday. MA shares traded lower by 0.29% at $419.53.