The IFR and retailers
A retailer’s guide to the Interchange Fee Regulation
The Interchange Fee Regulation (IFR) has brought a number of changes to the way UK card schemes (such as Mastercard and Visa) operate, most notably by introducing a cap on certain interchange fees applicable to payment cards.
This page aims to provide merchants and retailers that rely on card payments, with information on how the IFR impacts their business.
When a customer makes a payment
In most cases, when someone makes a card payment to you as a merchant, your bank (known as an acquirer) pays an interchange fee to your customer’s bank (known as an issuer). This does not apply to American Express cards. Interchange fees usually form part of the merchant service charge (MSC) that you pay your bank for its services.
The IFR caps interchange fees on UK consumer debit and credit card transactions. 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. The caps also apply to certain fees relating to some American Express card transactions. The interchange fee caps took effect from 9 December 2015. The Treasury has chosen not to exercise the national discretion to lower these caps in the UK.
Caps on card interchange fees
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 European Commission’s intention with the IFR caps is to redistribute the revenue from issuer banks to merchants and on to consumers. To read about the IFR in more detail visit the IFR section of our website.
Since 13 January 2018, you’re not allowed to charge customers extra if they pay using certain payment methods, including a card that is capped by the IFR. There are limited circumstances in which you may still surcharge a customer. The Department for Business, Energy and Industrial Strategy has published guidance on surcharging rules. You risk being reported to the local trading standards office if you do not comply with rules on surcharging.
Merchant Service Charges (MSC)
The MSC that you, as a merchant, pay your bank is made up of several components. While the IFR caps certain interchange fees, it does not cap the MSC.
If you want to reduce the charges you pay, speak to your bank or consider shopping around.
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. These include requirements for an acquirer bank to give their customers (i.e., merchants) information about the costs of accepting different brands and categories of cards (credit, debit, prepaid and commercial). This should help you negotiate a better deal with your bank.
You can find our infographic below:
When to contact the PSR
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.
Find out more
Click the links below to learn more about the IFR and how it affects consumers.