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The Payment Systems Regulator (PSR) has published a consultation paper (MR22/2.8) on its proposed methodology for identifying an appropriate level of multilateral interchange fees for UK-EEA card-not-present (CNP) transactions (Cross-Border MIF), i.e. payments to UK merchants generated with a payment card issued in the EEA.
A factsheet has been published alongside the consultation to help stakeholders understand how the consultation fits into the PSR's ongoing work on its market review into cross-border interchange fees. Comments on the consultation are requested by 21 November 2025.
Background
The proposed cap on Cross-Border MIF would apply to CNP transactions carried out under four-party payment card schemes. A four-party payment card scheme (Scheme) is made up of the person paying for goods or services with a payment card (cardholder), a financial institution that issues the card to the cardholder (issuer), the recipient of the cardholder's payment (merchant), and a financial institution that processes the card payment for the merchant (acquirer).
This includes Schemes such as Visa and Mastercard. Three-party payment card schemes such as American Express that typically provide issuing and acquiring services directly are not included.
Issuers charge acquirers interchange fees under Schemes. The PSR has previously concluded that the Cross-Border MIF had increased to unduly high levels post-Brexit and that this had caused harm to merchants and their customers.
Ditching the interim price cap
In December 2024, the PSR published its final report on the market review into Cross-Border MIF. The regulator determined that a price cap was the only effective remedy to mitigate the harm to merchants and their customers resulting from the post-Brexit increases in the levels of Cross-Border MIF.
The PSR highlighted concerns in its remedies consultation about the timeframe for developing a methodology for setting the level of a cap and the potential ongoing detriment caused by a delay in introducing such a cap until the completion of that work. The PSR therefore sought views on whether to introduce an interim price cap while it developed a longer-term cap.
As it explains in a statement of reasons published alongside MR22/2.8, the PSR has decided not to proceed with an interim cap on Cross-Border MIF. It says that this is in part due to the impact of proceedings being brought against the PSR by Mastercard, Visa and Revolut for judicial review of its proposal to impose a price cap on Cross-Border MIF. The PSR explains that it does not consider it appropriate to impose an interim price cap while litigation is ongoing, and it believes this, and the potential for further litigation were it to seek to impose an interim price cap, would reduce the anticipated period of time an interim price cap could be in place: from an expected 30 months to no more than a few months (if any). This would significantly reduce the potential benefits.
The PSR also recognises the risks of unintended consequences and costs (e.g. the costs of implementing two price caps in short order) and the limited evidence it had on how to set the interim cap at an appropriate level.
Approach and rationale in MR22/2.8
MR22/2.8 is a consultation on methodology for developing a price cap remedy for Cross-Border MIF. It is a technical document, so we have summarised the key points below:
- The PSR is planning to use the "merchant indifference test" (MIT) as a starting point for setting the Cross-Border MIF. In broad terms, the MIT is designed to identify the point at which a merchant would refuse a card payment if it were certain that a customer who was about to pay had an alternative means of payment (e.g. SEPA bank transfer). The PSR explains that the MIT is passed if accepting the card payment does not increase the merchant's operating costs.
- The PSR acknowledges that there are some limitations of the MIT. They include that the MIT is calculated at a specific moment in time and does not consider the long-term impact interchange fees have on issuers' decisions in investment and innovation (e.g. in relation to infrastructure and fraud prevention). The PSR therefore plans to consider whether a Cross-Border MIF set at the MIT level would damage issuers' incentives to invest.
- The PSR states that "reaching a view on the appropriate level of the MIF will not be a purely mechanical exercise". It will make its assessment of an appropriate level for a Cross-Border MIF cap "in the round", taking into account "some issuer-side considerations alongside the outcome of the MIT" (e.g. in relation to costs and incentives to invest).
Why the consultation matters
Although the PSR says that it is "robustly defending" the judicial review, there is the potential for the proceedings to scupper its plans for the permanent price cap (having already done for the interim price cap). It does not expect a judgment before 2026.
Setting that aside, it will be challenging for the PSR to balance what it sees as the potential benefits of the MIT (e.g. to merchants) against the potential adverse impact on other participants in Schemes (e.g. issuers) given what some may see as divergent commercial interests.
Scheme participants will no doubt therefore be considering their positions and closely watching what the PSR (soon to be the FCA - see our blog) does next.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
