Interchange Fee Regulation in the UK: The 0.2% and 0.3% Caps Explained

LAST REVIEWED 2026-09-06

What the IFR does

The Interchange Fee Regulation (IFR) is a piece of EU legislation that was adopted in 2015 to regulate interchange fees for card-based payment transactions. Interchange fees are the charges that merchants pay to card issuers through their acquiring bank for processing a card payment. The IFR introduced caps on these fees for consumer debit and credit cards, aiming to reduce costs for merchants and ultimately for consumers.

Following the UK's departure from the EU, the IFR was retained in UK law under the European Union (Withdrawal) Act 2018. This means that the caps on interchange fees continue to apply in the UK, providing a stable regulatory framework for card payments. The retained IFR is now part of the UK's domestic legislation, and it is enforced by the Payment Systems Regulator (PSR), which is the UK's economic regulator for payment systems.

The IFR applies to all card-based payment transactions where the cardholder and the merchant are both located in the UK or in the European Economic Area (EEA). However, as businesses will see, there are important exceptions and nuances, particularly for commercial cards and certain cross-border transactions.

Debit and credit caps

The IFR sets specific caps on interchange fees for consumer debit and credit card transactions. For consumer debit cards, the cap is set at 0.2% of the transaction value. For consumer credit cards, the cap is set at 0.3% of the transaction value. These caps apply to all transactions within the UK and the EEA, and they are designed to ensure that interchange fees are reasonable and proportionate.

It is important to note that these caps apply to the interchange fee itself, which is the fee paid by the merchant's acquiring bank to the cardholder's issuing bank. They do not apply to other fees that may be charged by acquirers or issuers, such as scheme fees or processing fees. The caps are also exclusive of VAT and other taxes.

The caps have been effective in reducing interchange fees in the UK. Before the IFR was introduced, interchange fees were often significantly higher, particularly for credit cards. The caps have helped to lower costs for merchants, which can in turn lead to lower prices for consumers. However, as businesses will discuss, not all card transactions are subject to these caps.

What is not capped

While the IFR caps interchange fees for consumer debit and credit cards, there are several important exceptions. The most significant exception is for commercial cards, which include corporate cards, business cards, and purchasing cards. These cards are used by businesses for their expenses and procurement, and they are not subject to the interchange fee caps. This means that interchange fees for commercial cards can be higher, and they are often negotiated bilaterally between the card scheme and the merchant's acquirer.

Another exception is for transactions that are not considered 'card-based payment transactions' under the IFR. For example, transactions using cash advances or ATM withdrawals are not covered. Additionally, transactions where the cardholder and the merchant are both located in the same country but the card scheme is not based in the UK or EEA may also be outside the scope.

Furthermore, the IFR does not apply to transactions where the cardholder is not a consumer. This includes transactions made with prepaid cards that are not issued to consumers, and transactions made with cards that are used for business purposes. It is essential for merchants to understand these exceptions, as they can affect the fees they pay.

Cross-border changes since 2021

Since the UK left the EU, there have been changes to cross-border interchange fees. The IFR originally applied to all transactions within the EEA, including those between the UK and EEA countries. However, after the Brexit transition period ended on 31 December 2020, the UK's retained IFR no longer applies to transactions where the cardholder is in the UK and the merchant is in the EEA, or vice versa. These transactions are now considered 'cross-border' and are subject to different rules.

In practice, this means that interchange fees for transactions between the UK and EEA can be higher than the caps set by the IFR. This is because the EU's IFR no longer applies to the UK, and the UK's retained IFR does not apply to EEA-issued cards. As a result, card schemes have set their own interchange fees for these transactions, which are often higher than the caps.

For example, a UK consumer using a credit card to make a purchase from an EU merchant may be subject to an interchange fee that is higher than 0.3%. This has implications for merchants who sell to EU customers, as they may face higher acquiring costs. It is important for businesses to be aware of these changes when pricing their goods and services.

Who enforces it

In the UK, the enforcement of the retained Interchange Fee Regulation is the responsibility of the Payment Systems Regulator (PSR). The PSR is an independent regulator that oversees payment systems in the UK, and it has the power to investigate and take action against parties that breach the IFR. The PSR can impose fines and other penalties for non-compliance.

The PSR also has a broader role in promoting competition and innovation in payment systems. It has conducted market reviews into the supply of card acquiring services, which have led to remedies to improve transparency and reduce costs for merchants. For example, the PSR has issued specific directions to require acquirers to provide clearer information about fees and to make it easier for merchants to compare offers.

In addition to the PSR, the Competition and Markets Authority (CMA) may also have a role in enforcing competition law in relation to interchange fees. However, the primary regulator for the IFR is the PSR. Merchants who believe that they are being charged interchange fees above the caps can complain to their acquirer or to the PSR.

What it means for your fee statement

When you look at your merchant fee statement, you may see a line item for interchange fees. These fees are typically passed through by your acquirer, and they are based on the card type and the transaction details. For consumer debit and credit card transactions, the interchange fee should not exceed the caps set by the IFR: 0.2% for debit and 0.3% for credit.

However, you may notice that some transactions have higher interchange fees. This is likely because they involve commercial cards or cross-border transactions, which are not subject to the caps. It is important to review your statements carefully to ensure that you are not being overcharged. If you see interchange fees that appear to be above the caps for consumer cards, you should raise this with your acquirer.

The PSR has also introduced measures to make fee structures more transparent. For example, acquirers are required to provide summary boxes and trigger messages to alert merchants to potential savings. Additionally, the PSR has limited the initial term of point-of-sale terminal rental contracts to 18 months, which can help merchants switch providers more easily. These measures aim to increase competition and reduce costs for merchants.

Frequently asked questions

Does the IFR still apply after Brexit?

Yes, the Interchange Fee Regulation (IFR) was retained in UK law after Brexit under the European Union (Withdrawal) Act 2018. This means that the caps on interchange fees for consumer debit and credit cards continue to apply in the UK. The retained IFR is now part of UK domestic legislation and is enforced by the Payment Systems Regulator (PSR). However, the IFR no longer applies to cross-border transactions between the UK and the EEA, which are now subject to different rules.

Are business cards capped?

No, commercial cards, which include business cards, corporate cards, and purchasing cards, are not subject to the interchange fee caps set by the IFR. This means that interchange fees for these cards can be higher and are typically negotiated between the card scheme and the merchant's acquirer. Merchants should be aware that transactions made with commercial cards may incur higher interchange fees than consumer cards.

Who regulates interchange in the UK?

In the UK, the Payment Systems Regulator (PSR) is responsible for enforcing the retained Interchange Fee Regulation. The PSR has the power to investigate and take action against parties that breach the caps. It also oversees the broader card acquiring market and has introduced measures to improve transparency and competition. The Competition and Markets Authority (CMA) may also have a role in enforcing competition law, but the PSR is the primary regulator for interchange fees.

Why did EU cross-border interchange rise?

After Brexit, the UK's retained IFR no longer applies to transactions between the UK and the EEA. As a result, card schemes have set their own interchange fees for these cross-border transactions, which are often higher than the caps that previously applied. This means that UK merchants accepting payments from EEA customers, or EEA merchants accepting UK cards, may face higher interchange fees. This is a consequence of the UK no longer being part of the EU's regulatory framework.

Do the caps apply to Amex?

The IFR caps apply to card-based payment transactions, but there are exceptions for three-party card schemes like American Express (Amex). Under the IFR, Amex is considered a three-party scheme, and it is not subject to the caps if it does not use acquirers that are separate from the scheme. However, if Amex issues cards through licensees or uses acquirers, it may be treated as a four-party scheme and thus subject to the caps. In practice, Amex interchange fees are often not capped, but this depends on the specific structure.