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Interchange Fee Regulation - what it is, what it does, and our role

The Interchange Fee Regulation

The IFR is European Union (EU) legislation that took effect on 8 June 2015 and brought major changes to the way UK card schemes (such as Visa and Mastercard) operate, most notably by introducing a cap on certain interchange fees applicable to payment cards.

The Treasury designated us as the lead competent authority for the IFR in the UK in the Payment Card Interchange Fee Regulations 2015.

What is an interchange fee?

An interchange fee is paid from a merchant’s bank (called an acquirer) to a card user’s bank (called an issuer) for most transactions when a card payment is made (except for American Express cards) – for example, when somebody buys groceries from a supermarket using their card. The European Commission’s intention with the IFR caps is to redistribute the revenue from issuer banks to merchants and on to consumers.

To find out more about the IFR, read the European Commission’s policy brief.

What does the IFR do?

The IFR caps interchange fees on UK consumer debit and credit card transactions (except American Express cards).

Where the caps apply, they currently limit interchange fees to 0.2% of the value of a transaction for consumer debit cards (including prepaid cards), and 0.3% for consumer credit cards. Certain fees relating to some American Express card transactions are also capped. The IFR caps took effect from 9 December 2015. The Treasury has chosen not to exercise the national discretion to lower these caps in the UK.

The Treasury gave card schemes the option to apply a weighted average interchange fee to UK consumer debit card transactions. If a card scheme does this, the interchange fee on an individual transaction may be more or less than 0.2%. But the weighted average interchange fee is capped at 0.2% of the annual average transaction value of all domestic consumer debit card transactions within that card scheme. Visa opted to apply such a weighted average interchange fee in the UK for some of 2016.

Our guidance on our approach to monitoring and enforcing the IFR provides more information on the transactions that are not covered by the interchange fee caps.

The IFR is not just about card fee caps

In addition to the interchange fee caps, the IFR also introduced a number of business rules. Most of the business rules took effect from 9 June 2016. They include requirements for an acquirer bank to give their customers (merchants) information about the costs of accepting different brands and categories of cards (credit, debit, prepaid and commercial). This should help merchants negotiate a better deal with their banks.

The PSR’s role

As the lead competent authority for the IFR in the UK, we have published guidance on our approach to monitoring and enforcing the IFR. Our powers to monitor and enforce the IFR are set out in the Payment Card Interchange Fee Regulations 2015.

If you have a complaint about a breach of the IFR, you may submit it to us. We may then decide to open an investigation.

To find out how to submit a complaint to us, visit our complaints page for more information.

In October 2018, we signed a Memorandum of Understanding (MoU) that sets out how we will work with other EU authorities to monitor the separation requirements for card schemes under the Interchange Fee Regulation (IFR) and the regulatory technical standards Regulation (RTS Regulation).

Find out more

Click the links below to learn more about how the IFR affects people and businesses.

How the IFR affects retailers

What the IFR means for consumers

Notices we have issued to card schemes - January 2018