PSR publishes policy statement and final guidance on its approach to the Interchange Fee Regulation

Written on 5 May 2016

As we reported previously, the UK’s Payment Card Interchange Fee Regulations 2015 (IFRs), implementing the EU Interchange Fee Regulations (MIF Regulation) in the UK, came into force on 9 December 2015. Provisions within the IFR take effect on different dates. The interchange fee caps come into effect on 9 December 2015 and the majority of provisions relating to business rules take effect on 9 June 2016. The Payment Systems Regulator (PSR) published its final guidance on the rules relating to interchange fee caps on 24 March 2016.

What has changed since the draft guidance was published?

The PSR published its initial consultation on a draft version of the guidance in December 2015. In its recent policy statement (published with the final guidance on 24 March 2016), the PSR summarises the findings of this consultation, noting that the responses received were generally supportive of the draft guidance, although some respondents challenged the PSR’s approach as being inconsistent with the MIF Regulation (either through misinterpretation or misstating its provisions).

Respondents also sought additional clarity on the methodology for calculating market shares, the definitions of commercial cards, cross-border and domestic transactions, the definition of the Merchant Service Charge (in particular where this includes the interchange fee) and on the PSR’s approach to monitoring compliance with the interchange fee caps and anti-circumvention provisions. The PSR has considered the views of respondents and made amendments to its guidance to provide further clarification and explanation where it felt that this was necessary.

Final determination on card schemes subject to domestic interchange fee caps in the UK

As part of the various discretions permitted to EU Member States, the UK Government decided to allow three-party card systems that use issuers and acquirers to benefit from the three year time-limited exemption from domestic fee caps, on the basis that this will afford a transitional period during which schemes can renegotiate their fee arrangements with issuers and acquirers. In December 2015 the PSR considered whether American Express, the only scheme operating in the UK that could qualify for such exemption, would qualify.

At the time, given American Express’ market share was above the 3% threshold for this exemption, the PSR formed the provisional view that it could not be exempted and that it would have to comply with the relevant provisions until 31 March 2016. The PSR has since reviewed the position, and on 24 March 2015 issued a statement that (since its market share exceeded 3% during 2015), American Express must comply with the interchange fee caps to 31 March 2017.

Next steps

The PSR is consulting on the MIF Regulation in two phases. The PSR’s March 2016 final guidance relates to its approach to monitoring compliance with the provisions capping interchange fees or equivalent issuer compensation (Phase 1). Over the summer of 2016 the PSR intends to publish a further consultation for Phase 2 which focuses on the remaining provisions that will come into effect on 9 June 2016.