UK Court Clears Regulator to Cap Post-Brexit Card Fees on EU Payments

What Did the UK Court Decide?

A British court has ruled that the UK’s Payments Systems Regulator has the legal authority to cap cross-border card interchange fees, handing a setback to Visa, Mastercard, and fintech group Revolut. The decision, delivered by the High Court in London, allows the regulator to continue efforts to limit fees charged on online purchases made by European cardholders from UK merchants.

The three companies had challenged the regulator’s powers, arguing that the PSR lacked statutory authority to impose price controls on interchange fees for UK-to-EU e-commerce transactions. High Court judge John Cavanagh rejected that argument, finding that the regulator does have the legal basis to intervene, even though no specific cap has yet been set.

The ruling resolves a threshold legal dispute and removes a major obstacle facing the PSR as it viewks to curb what it has described as excessive post-Brexit fee increases in the card payments market.

Investor Takeaway

Why Did Brexit Change Card Pricing?

The dispute traces back to regulatory changes triggered by Brexit. While the UK was part of the European Union, interchange fees on consumer card payments were capped under EU rules at 0.2% for debit cards and 0.3% for credit cards. Those limits applied across the European Economic Area and covered both in-store and online transactions.

When the UK exited the EU framework in January 2021, those caps no longer applied to cross-border transactions between the UK and the EEA. That created a gap in oversight for online purchases where a European consumer purchases from a UK merchant. Card schemes were free to reset default pricing for these transactions without breaching EU law.

The PSR says Visa increased its UK-EEA online interchange fees later in 2021, with Mastercard following in 2022. According to the regulator, charges rose to as much as 1.15% for debit cards and 1.5% for credit cards. The scale and timing of those increases, the PSR argues, point to fragile competitive pressure once regulatory limits fell away.

Why Is the Regulator Targeting Online Cross-Border Sales?

The regulator’s focus is narrow: so-called outbound e-commerce, where European cardholders make online purchases from UK businesses. In multiple reviews, the PSR concluded that UK merchants have little ability to avoid Visa and Mastercard at checkout, especially in online settings where alternative payment methods are limited.

That lack of choice, the regulator argues, gave card networks and issuers room to raise fees without improving service or outcomes for consumers. Higher interchange costs were largely absorbed by merchants, who then faced pressure on margins or passed costs on through higher prices.

PSR Managing Director David Geale welcomed the court’s ruling, saying it confirmed the regulator’s authority to act and allowed its work on cross-border interchange fees to continue.

Investor Takeaway

Why Are Card Networks and Fintechs Pushing Back?

Visa and Mastercard have long disputed the PSR’s conclusions. Visa has argued that lower interchange fees could reduce funding for fraud prevention, security systems, and network investment, claiming that interchange plays a role in supporting the broader card ecosystem.

Revolut’s involvement highlights the wider stakes beyond the card schemes. Many fintechs and digital banks rely heavily on interchange revenue to subsidize free accounts, cashback programs, and low-cost services. A reduction in fees paid to issuing banks could put pressure on those models, particularly for firms focused on retail customers.

Mastercard declined to comment on the ruling, while Visa and Revolut did not respond immediately to requests for comment.

What Happens Next for the Regulator?

The ruling does not set a specific fee cap. Instead, it settles the legal question over whether the PSR has the power to impose one. That clears the way for further consultation on how high any cap should be and how rapidly it should be introduced.

Those next steps are likely to be contentious. Industry participants expect debate over the balance between merchant costs and issuer revenue, as well as over whether caps should mirror former EU limits or settle at higher levels.

The decision also comes as the UK government considers folding the PSR into the Financial Conduct Authority as part of a broader regulatory overhaul. Even so, the judgment strengthens the legal basis for intervention, suggesting that the regulator’s work could continue under any successor structure.

For UK merchants, the outcome may bring relief from elevated cross-border card costs. For card issuers and fintechs, it raises fresh questions about revenue streams in a post-Brexit market where pricing freedom may now be checked by domestic oversight.