(Bloomberg) -- A top UK regulator is moving forward with a proposal that would cap how much British merchants pay in credit-card fees on certain purchases made by European consumers, risking retaliation from lawmakers on the continent who feel their banks are being treated unfairly by Britain.
Following a monthslong review, the UK’s Payment Systems Regulator found that implementing a cap would be appropriate, according to a statement Friday. It will now collect feedback on the level where that cap should be set.
By moving forward with the proposal, the UK will likely be crimping the revenue that European banks’ collect whenever their consumers shop with British merchants. At the moment, each time their customer uses a credit card to buy something online from a UK merchant, the retailer pays them a fee that’s equal to 1.5% of the purchase price.
The PSR is considering an initial cap of 0.3% for credit card transactions and 0.2% for debit card spending. At that level, members of the European Parliament have warned that some European banks might lose money on certain transactions and have told the PSR that if the EU retaliated, UK financial firms and their consumers would suffer the same consequences.
The PSR is also now consulting on imposing a cap that could allow issuers to cover the costs of a transaction, the regulator said Friday.
“We have carefully considered the feedback we have received,” David Geale, the PSR’s managing director, said in the statement. “We consider that consulting on a range of options for capping prices is the best way forward to ensure UK businesses get a better deal.”
Visa Inc. and Mastercard Inc., which set the charges on behalf of the banks, hiked those fees once the UK left the European Union. The PSR’s review came as the regulator found that UK businesses paid an extra £150 million to £200 million as a result of that change.
“Artificial controls on interchange do not reflect the commercial reality of today’s market and, if not set at the right level, can negatively impact the value people and businesses receive from card payments,” Mastercard said in a statement, adding that it will continue to engage with the PSR.
Visa said it continues to dispute the overall findings of the PSR. “It will be important to ensure that any measures do not lead to uncertainty and unintended consequences,” which could jeopardize “the UK’s leading status as a competitive, thriving and innovative payments ecosystem,” it said.
©2024 Bloomberg L.P.