Visa and Mastercard are to be investigated after raising fees more than fivefold on some cross-border transactions since Britain left the European Union.
The Payment Systems Regulator (PSR) said it was launching two market reviews of fees set by the two American groups, whose networks together account for 99 per cent of all debit and credit card payments in Britain.
MPs have expressed concern about rising fees paid by merchants to process payments, which are typically passed on to consumers.
“We want to understand whether card payments are working well and to make sure that merchants, and ultimately consumers, get a good deal,” Natalie Timan, the regulator’s head of strategy, said.
The first PSR review will look at why there was such a big post-Brexit increase in the cross-border interchange fees paid by retailers for the processing of consumer purchases made by phone or online in the EU, the watchdog said.
It had already said that preliminary inquiries had been unable to find an explanation for the increase based on volumes, value or mix of transactions.
The fee on UK/EU credit card transactions was lifted from 0.3 per cent of the purchase value to 1.5 per cent. The fee on debit card transactions was lifted from 0.2 per cent to 1.15 per cent. The higher fees were imposed both on consumers in Britain buying goods and services from the EU and vice versa.
The fees had been capped by an EU agreement that fell away in Britain after it left the trading bloc on January 31, 2020. The payments regulator said it wants to understand the rationale behind these increases and whether they are an indication that the market is not working well.
The second review is into fees for services that allow retailers to accept card payments. The regulator said fees paid by the banks, which process transactions on behalf of merchants, had risen “significantly” between 2014 and 2018 and in some cases had continued to rise.
Mastercard said that Britain was one of the most innovative and competitive payments markets in the world and the company was committed to working with the PSR to increase choice in the interests of everyone who makes and receives payments. Visa said it continued to be one of the most cost-effective and secure ways to pay and be paid.
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Draft terms of reference for the reviews have been put out for public consultation until August 2.
The payments regulator is the independent watchdog that oversees the financial plumbing in the UK. Last month it fined NatWest £1.82 million for overcharging fees on credit cards, disadvantaging so-called acquirers, other banks that process transactions, and ultimately their merchant clients.
It also has the power to refer the companies it regulates to the Competition & Markets Authority. “Cross-border interchange fees have increased significantly in the last year,” the payments watchdog said. It affects fees where the cardholder is not present. “Since the UK left the EU, Visa and Mastercard have increased these fees five-fold.”