The Payment Systems Regulator is tightening its grip on interchange and scheme fees. Here is what the latest developments mean in plain English for UK small business owners.
Every time a customer taps their Visa or Mastercard at your till, a quiet negotiation happens in milliseconds that you never agreed to and can barely influence. A fee leaves your account. It travels through a chain of intermediaries. Most of it ends up with a bank or a card scheme. You had no say in the rate, no transparency into the breakdown, and until recently, almost no regulator looking closely at whether the whole arrangement was fair.
That is changing. Slowly, imperfectly, but meaningfully.
The Payment Systems Regulator has been one of the more active financial regulators in recent memory, and its ongoing scrutiny of card scheme fees, interchange rates, and the cross-border transaction market is starting to produce consequences that every UK small business owner should understand.
The Payment Systems Regulator is a body most small business owners have never heard of, which is itself part of the problem. Established in 2015 and accountable to Parliament, the PSR regulates payment systems in the UK including Faster Payments, CHAPS, LINK, and the card networks operating here. It sits alongside the FCA and the Bank of England as one of the three pillars of UK financial oversight, but its mandate is specifically focused on making payment systems work in the interests of businesses and consumers, not just the institutions that run them.
In 2024 and into 2025, the PSR has been doing something that would have seemed unlikely a decade ago: directly challenging Visa and Mastercard.
In October 2023, the PSR published its interim report on card scheme and processing fees, and the findings were uncomfortable reading for the two dominant card networks. The regulator found that Visa and Mastercard had increased their scheme and processing fees by an estimated 25 to 30 percent in real terms between 2017 and 2021. These are not the interchange fees paid to your customer's bank. These are the fees the networks charge acquirers (the companies that process your payments) simply for using their infrastructure.
Acquirers pass those costs on. To you.
The PSR's final report, published in 2024, confirmed the central finding: there is insufficient competitive pressure on Visa and Mastercard to keep these fees in check. The report recommended a new mandatory framework requiring the networks to provide much greater transparency about what fees they charge and why, and to submit to independent scrutiny.
This matters because it is the first serious regulatory acknowledgement in the UK that the fee structures underpinning card payments are not the result of a competitive market. They are the result of a duopoly with very little incentive to lower prices.
Separately, the PSR has been scrutinising what happened to cross-border interchange fees after Brexit. When the UK was part of the EU, interchange fees on consumer card transactions were capped at 0.2 percent for debit cards and 0.3 percent for credit cards under the EU Interchange Fee Regulation. Those caps applied to cards issued in the EU being used in UK businesses, and vice versa.
After Brexit, those caps no longer applied to cross-border transactions between the UK and the EU. Visa and Mastercard both raised their cross-border interchange fees substantially, in some cases to 1.15 percent for debit and 1.5 percent for credit. For a small business with even modest European tourist footfall or online sales to EU customers, this is not a rounding error. It is a structural cost increase with no competitive alternative.
The PSR launched a market review into this in 2022. By 2024, it had concluded that the increases were not justified by any corresponding change in cost or risk, and it has been consulting on how to respond. One option on the table is reimposing caps. Another is mandating greater transparency so that businesses can at least see what they are paying and why.
For context: UK Finance estimates that UK businesses pay approximately £1.3 billion per year in cross-border interchange fees to Visa and Mastercard. A significant proportion of that increase landed directly on SMEs with no ability to negotiate, no alternative network, and no regulator actively protecting them until now.
It is important to be honest here. Regulatory investigations take time. The PSR's conclusions are significant, but the concrete changes for your business right now are limited. What has happened:
What has not changed yet: the fees themselves. If you are processing card payments today, you are almost certainly still paying more than you were in 2017 on a fee-per-transaction basis, and if you take European cards, you are paying materially more than pre-Brexit rates.
The regulatory direction of travel is clear. The PSR is building the evidence base and the powers to intervene more directly in card fee pricing. That is worth knowing, because it changes how you should think about your payment setup.
First, get full visibility on your current fees. Many small businesses are on blended or bundled pricing from their payment provider, which makes it impossible to see what the underlying components actually cost. If you do not know what you are paying in scheme fees versus interchange versus processor margin, you cannot make informed decisions. Ask your provider for an interchange-plus breakdown, even if you are not on that pricing model.
Second, understand what card types you are actually accepting. Commercial cards and premium rewards cards carry higher interchange rates than standard consumer debit cards. If your customer base skews towards business buyers or affluent consumers with premium cards, your effective rate will be higher than the headline rate you were quoted.
Third, watch the account-to-account developments. The PSR and the government are actively investing in open banking payment infrastructure as a long-term competitor to card payments. Pay by Bank solutions are still maturing, but businesses that adopt them early will be better positioned when the volumes follow.
Fourth, review your cross-border setup specifically. If you sell online to EU customers, or if your physical location attracts European visitors, understand exactly what you are paying on those transactions. The fee differential from EU-issued cards is real, documented, and being actively reviewed by regulators. This is not a permanent fixture.
The PSR's work on card fees is part of a wider global reckoning with the cost of payments infrastructure. Australia's Reserve Bank has gone further than the UK in regulating interchange. The EU has been tightening its own framework. In the United States, the Durbin Amendment debate continues. The direction everywhere is the same: card networks that have operated with minimal oversight for decades are now under sustained regulatory scrutiny.
For UK small businesses, the PSR's active stance is genuinely good news. It will not produce overnight savings. Regulatory remedies move slowly, and Visa and Mastercard have considerable resources to engage in protracted consultation processes. But the principle that these fees must be justified, transparent, and proportionate is now embedded in UK regulatory thinking in a way it was not five years ago.
That is worth something. And while you wait for the structural change, getting clarity on what you are paying today is the single most actionable thing you can do.
Klipy helps UK small businesses track and understand their payment costs. If you want to see a clear breakdown of what your card processing is actually costing you, that is exactly what we are built for.
Suggested Data Visualisation: A dual-axis bar and line chart showing UK small business card processing fee components (interchange, scheme fees, acquirer margin) from 2017 to 2024, with a secondary line tracking PSR enforcement actions and consultations on the same timeline. This visually connects the fee trajectory to the regulatory response curve.
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Disclaimer
The views and information shared in this post are for educational and informational purposes only and do not constitute financial, legal, or professional advice. While every effort is made to ensure accuracy, Klipy UK Limited accepts no liability for decisions made based on this content. Payment processing rates, regulations, and product features referenced are subject to change. Klipy UK is an authorised seller of Teya payment solutions. Where third-party sources are cited, links are provided for reference; Klipy UK does not endorse or guarantee the accuracy of external content. For personalised guidance on your business payment needs, please contact us directly at editor@klipy.uk.
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This content is published by Klipy UK, a Teya-authorised reseller of payment solutions. The views expressed are for informational purposes only and do not constitute financial advice. All content is the intellectual property of Klipy UK. Reproduction without permission is prohibited.
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