Application of the IFR: Final guidance
Important notice: We published a revised version of our IFR Guidance in June 2020 with a new version of Chapter 7, which we revised so that it is consistent with our revised Powers and Procedures Guidance (PPG) where appropriate.
We have published our final guidance on how we will monitor and enforce the Interchange Fee Regulation (IFR).
The IFR provisions came into force in two broad phases. The Phase 1 provisions were in force by 9 December 2015. The Phase 2 provisions came into force on 9 June 2016.
This guidance consolidates the final guidance for Phase 1, published in March 2016, with our final Phase 2 guidance following consultation earlier this year. The consolidated guidance sets out how we will monitor compliance with all provisions of the IFR.
We have today also published a Policy Statement which summarises the main points raised from responses to our Phase 2 consultation.
- Read the final guidance (consolidated guidance for Phase 1 and Phase 2 provisions)
- Read the Policy Statement (in respect of Phase 2)
What is the IFR?
The IFR is EU legislation that took effect on 8 June 2015 and brought major changes to the way card payment systems operate in Europe.
Most notably, since 9 December 2015, it caps the interchange costs passed on to merchants processing card payments, therefore giving more certainty around interchange fees.
What is an interchange fee?
Interchange fees are fees paid by the bank of a merchant (such as a supermarket) to the bank of a card user (such as somebody buying groceries) when a card payment is made.
Interchange fees are one part of the total cost to the merchant of processing a card payment, which is known as a merchant service charge or MSC.
Why are we publishing this guidance?
In November 2015 HM Treasury confirmed that the PSR would be the main competent authority, or lead regulator, for the IFR in the UK.
In March 2016 we published final guidance on Phase 1 of the IFR.
In May 2016 we consulted for Phase 2 of the IFR - the remaining IFR provisions which were not captured by Phase 1.
What are the key points?
This final guidance sets out the consolidated guidance for Phases 1 and 2.
It provides clarity on:
- to whom the IFR applies
- interchange fee caps and how we will consider who may be exempt
- separation of payment card scheme and processing entities
- co-badging and choice of payment brand or payment application
- rules around the ‘honouring’ of all cards
- our approach to monitoring compliance with the IFR
- gathering initial compliance reports from relevant parties
- investigating complaints about non-compliance with the IFR
- our powers and procedures under the IFR
- penalties under the IFR
Who should read this final guidance?
This guidance is relevant to the participants in payment card schemes (operators, payment service providers and infrastructure providers) and merchants.
It may also be of interest to consumers who want to understand how credit and debit card charges may be affected by the interchange fee caps.
During consultation we were contacted by a number of merchants who said they had not seen a reduction in their MSC – despite the new cap on interchange fees.
It’s important to note that interchange fees are just one part of an MSC and there are other factors that need to be considered when attempting to understand why charges have not been reduced across the board.
Nonetheless, we recognise that many merchants want to get a better rate. We recommend merchants contact their acquirer to discuss their MSC and consider shopping around to see what other rates are on offer.