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The UK financial regulator FCA’s payments regulation unit, the Payment Systems Regulator (PSR) issued its final guidance on new European legislation surrounding payment cards. The guidance sets out the regulator’s approach to the monitoring and enforcement of the Interchange Fee Regulation (IFR) in the UK.
IFR has brought major changes to the way card payment systems operate in Europe, most notably by introducing caps on Interchange Fees. Each EU Member State is given local discretion as to the level at which the caps are set within the bands specified in the IFR. In the UK, the Treasury has set the caps at 0.2% of the value of a transaction for debit cards, and 0.3% for credit cards. The caps came into effect across Europe in December 2015.
What are Interchange Fees?
Interchange Fees are often paid by the bank of a merchant (such as a supermarket) to the bank of the card user (such as somebody doing a weekly shop when card payments are made). Traditionally the merchant’s bank passes the cost of these fees on to the merchant as part of the ‘merchant service charge’
Before the IFR was introduced, the average Interchange Fee charged by UK card schemes (for example, MasterCard and Visa) was around 0.8% for credit card transactions. Some premium cards were charged at an even higher rate. The new cap means that the average credit card Interchange Fee will fall by around 70%.
Hannah Nixon, Managing Director of the PSR, said:
The intention of the IFR, as well as providing savings to consumers by reducing interchange fees, is to boost transparency and remove barriers so others can enter the market and compete. We will be watching with interest to see how the industry adapts to the regulation.
We know that businesses are keen to see the fee caps reflected in their merchant service charges. Our guidance clarifies the IFR for the UK card payments industry and we would expect to see the benefits passed on to merchants in the fees that they pay. However, if merchants remain unhappy they should contact their acquirer and consider shopping around to get a better rate.
As well as the interchange fee caps, the guidance provided by the PSR also considers which card schemes the IFR applies to, the PSR’s approach to monitoring compliance, its powers and procedures under the regulation, and penalties for non-compliance. The guidance is part of ongoing work to provide clarity on the IFR. The PSR stated that it will consult on further guidance relating to business rules later this year.
Separately, but relevant to this guidance, the PSR has also published a final determination which confirms which card schemes operating in the UK are captured by the IFR interchange fee caps.
For more on the PSR’s guidance on IFR and Interchange Fees click here.