Keeping pace with the PSR: proposals on scheme, processing and interchange fees, and a new home within the FCA

It would be fair to say that the Payment Systems Regulator (PSR) has had a rather eventful year thus far. Given the number (and significance) of recent developments, we have prepared a quick summary of the key highlights below. 

The PSR, established under the Financial Services (Banking Reform) Act 2013, was officially launched with full regulatory powers on 1 April 2015. The PSR uses these powers to ensure the UK’s payment systems are operated and developed in the interests of their users, maintaining competition and resilience as well as user safety and trust in the sector. The payment systems designated to the PSR by HM Treasury comprise:

• Bacs (for bank transfers)
• CHAPS (the clearing house payment system for high-value transactions)
• cheque credit
• the Faster Payments System (FPS)
• LINK (the UK ATM network)
• Mastercard, Visa and the Sterling Fnality Payment System) 

They work closely with other regulators such as the FCA and Competition and Markets Authority (CMA) as well as key stakeholders, to assess compliance with regulation, identify and remove barriers to innovation, and progress developments in infrastructure, helping shape payment policy in the UK.    

Shaking up card scheme and processing fees

In March, the PSR published the final report on its market review of card scheme and processing fees. Card payments form a significant part of the UK payments landscape, accounting for 61% of all UK payments (or 86% of retail transaction value); the review focussed on the importance of supporting innovation and competition across card payment schemes. The report stressed the importance of minimising competitive constraints in card schemes and processing arrangements, emphasising the value of transparency in pricing structures to support merchants and acquirers. 

The PSR also identified broader issues affecting competition within the markets for both card issuers and acquirers. 

In light of its findings, the PSR is consulting on a number of proposed remedies. Potential remedies under consultation include publishing scheme information, providing more detailed regulatory reporting, limiting fee increases, clearer disclosure of pricing structures and imposing caps on certain charges. 

The consultation is open until 28 May 2025, and should the PSR then decide to proceed with a remedy package, a further consultation is planned at that stage. 

A fee cap on the cards for cross-border interchange fees?

The PSR also published a market review of UK-EEA consumer cross-border interchange fees at the end of 2024. The final report found that a lack of competition in the cross-border interchange fee market had resulted in merchants paying an additional £150 – 200 million per year in interchange fees on UK-EEA transactions. 

The PSR recently consulted on potentially implementing a fee price cap to remedy this impact on merchants and to the extent it was passed on to their customers. This was posed as potentially being implemented as a two-stage process, with initial time-limited caps (stage 1) to be followed by appropriate longer-lasting caps (stage 2) after review and assessment of the stage 1 cap levels. 

If the PSR decides a cap is appropriate, it will publish a final remedies notice on the initial price cap, opening a consultation into a proposed methodology for developing the longer-lasting caps. 

Two become one

On 11 March 2025, almost 10 years since the PSR was launched, it was announced by the UK Prime Minister that the PSR would be abolished, with its functions being consolidated into the Financial Conduct Authority’s (FCA) structure. 

HM Treasury confirmed that the Government will consult on the details of the proposed consolidation over the summer and that legislation would follow as soon as possible. 

The proposal was driven by what the Government described as its aim to engender a more streamlined regulatory environment, with minimal overlap between regulators’ responsibilities, fostering a framework in which regulators can focus resources and deliver innovations. 

Whether this change will improve efficiencies and the payments landscape to the benefit of businesses remains to be seen. The PSR has certainly faced criticism for its interventions, not least in relation to its work on Authorised Push Payment scams. The sentiment underpinning the consolidation is to allow businesses and consumers improved ease of access to one regulator, potentially reducing the regulatory burden and administration (a key Government initiative) and promoting a single, joined-up approach to financial and payment systems. Of course, the implementation of the consolidation could, conversely, result in greater regulatory burden, cost or uncertainty, not least if the plans are part of a wider proposed change to the payments sector. 

While the announcement does not immediately change the role or responsibilities of the PSR or its ongoing work programme until legislation is implemented, the PSR and FCA will be working even more closely together to ensure a smooth transition. It will be important for businesses to engage with the legislative reforms proposed, which could potentially take years to develop and implement, to ensure that the resulting landscape is fit for purpose.

For more information and updates, please contact Dr Saskia King, Alice Drain and David Pemberton