UK Payments Industry Faces New Limits After Landmark Court Decision

Source: Coindoo Original Title: UK Payments Industry Faces New Limits After Landmark Court Decision Original Link:

A long-running dispute over online card payments in the UK has tipped firmly in favour of regulators.

The High Court has rejected attempts by major payments players to block new rules that would rein in the fees banks charge each other for cross-border online transactions.

Key takeaways:

• UK judges backed the regulator’s right to cap cross-border card payment fees
• Visa, Mastercard, and Revolut failed to convince the court the rules harm competition
• The decision targets sharp fee increases that followed Brexit
• UK businesses are expected to save hundreds of millions of pounds annually

The case pitted the Payment Systems Regulator against Revolut, Visa, and Mastercard. All three companies argued that the regulator was acting beyond its mandate and distorting the market by imposing price controls. The court rejected that view, siding with the regulator and clearing the path for intervention.

The roots of the conflict go back to the UK’s exit from the European Union. Once EU fee limits stopped applying, the regulator observed a rapid escalation in charges linked to online card payments between the UK and overseas merchants. Particular attention was given to “card-not-present” transactions, typically e-commerce purchases where buyer and seller are in different countries.

Evidence presented showed just how dramatic the shift had been. Within a year, debit card interchange fees associated with Visa and Mastercard climbed from 0.2% to 1.15%, while credit card fees rose from 0.3% to 1.5%. In the regulator’s view, such increases could not be explained by higher risk or operational costs alone.

Why the regulator stepped in

Visa and Mastercard maintained that they do not directly collect interchange fees, which are paid to banks. Even so, the court accepted the argument that card networks still benefit indirectly. Higher fees make their systems more attractive to banks, since banks earn more per transaction, strengthening the networks’ market position. Reducing fees could therefore alter banks’ incentives and competitive dynamics.

The broader motivation was the impact on businesses. In briefings reported by the Financial Times, the regulator estimated that inflated fees were adding £150 million to £200 million a year to UK companies’ costs. That financial burden, it argued, justified regulatory action to prevent merchants from consistently overpaying for cross-border card payments.

Opposition from the financial sector has been vocal. Several European banks and fintech firms warned the Treasury that a strict cap could make some transactions unprofitable, as processing costs might exceed the permitted fees. For payment-focused fintechs such as Revolut, which rely far less on lending income than traditional banks, capped fees threaten a key revenue stream.

Industry critics have also pointed to wider post-Brexit pressures. Cross-border payments now involve additional compliance and administrative steps, raising costs. At the same time, the growing use of digital wallets like Apple Pay and Google Pay adds further technical and commercial expenses that providers must absorb.

Despite these concerns, the ruling allows the regulator to move forward, even though the exact level and start date of the cap have yet to be defined. There is an irony in the timing: the Payment Systems Regulator itself is set to be abolished, with its powers folded into the Financial Conduct Authority as part of a broader government overhaul.

The decision also lands amid renewed political pressure on financial institutions. It follows fresh calls in the market to cap credit card interest rates, unsettling banks globally. Together, these moves signal a tougher environment ahead for payment providers and card networks facing growing scrutiny over how much they charge.