EU Banks Have ‘Serious Concerns’ About UK Transaction Fee Cap

European banks reportedly have issues with the U.K.’s plan to cap international digital transaction fees.

A pair of trade organizations — the European Banking Federation and Payments Europe — say the proposal by the British Treasury was “potentially discriminatory” and a “risk to the integrity of national payments and retail banking markets in the EU,” the Financial Times (FT) reported Wednesday (Aug. 14).

The letter, seen by the FT, argues that the proposal could be especially harmful to FinTechs and digital banks, as they do not provide lending at scale and are thus more dependent on income from payment fees than larger banks.

The U.K.’s Payment Systems Regulator (PSR) proposed the cap last year after a review of cross-border interchange fees on transactions between U.K. businesses and the European Economic Area (EEA), in an effort to protect merchants from overpaying.

“In this market review we have provisionally found that the fees charged by Mastercard and Visa to UK businesses which accept payments from within the EEA are likely too high,” Chris Hemsley, the PSR’s then-managing director, said in a news release. “In short, at this stage, we do not think this market is working well.”

The PSR’s proposal would place an initial, one-time limited fee cap of 0.2% on consumer debit transactions between the U.K. and EEA, along with a 0.3% cap on consumer credit transactions made online at businesses in the U.K. The regulator is also proposing a “lasting cap” on credit card interchange fees after further study determines an appropriate level.

“After the U.K. left the European Union, both Visa and Mastercard raised interchange fees for online transactions between the EU and the U.K. to 1.15% for debit cards and 1.5% for credit cards, saying the hike was needed to contend with fraud and increased competition,” PYMNTS wrote last year.

Both Visa and Mastercard have told PYMNTS they do not agree with the PSR’s conclusions, with Visa saying its interchange rates apply to less than 2% of U.K. card payments for EEA cardholders buying online from a U.K. seller.

The PSR issued a report in May that concluded that charged increases in the fees levied on acquirers and issuers through the past five years by Visa and Mastercard “could not be explained by changes in the volume, value or mix of transactions.”

Once again, Mastercard and Visa said they disagreed with the findings of that report.

“In its analysis, the PSR has failed to account for the significant investment required to provide a secure network which prevents billions of pounds of fraud  each year,” a Mastercard spokesman told PYMNTS at the time.