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PSR: Interchange Fee Regulation

The Interchange Fee Regulation (IFR) was adopted in Europe on 29 April 2015 and came into effect in the UK on 8 June 2015. The IFR requirements can be split into two phases. Phase 1 introduces caps on interchange fees for card transactions, which came into force on 9 December 2015. Phase 2 introduces some wider requirements that came into force on 9 June 2016, which will have an impact on retailers as well as card issuers and acquirers.

The Payment Systems Regulator (PSR) is the first of the competent authorities to issue guidance on the IFR in Europe. In general, we are supportive of the approach the PSR has taken to the interchange caps and to the wider requirements.

However, we are concerned about the PSR’s interpretation of Article 8(2) on co-badging. They are requiring the capability for consumers to ask for a co-badged plastic card where an issuer does not currently offer this service. We do not believe that this interpretation fits the legislative intent of the Article, and the practical implications for the UK would be considerable. Co-badging would require significant technical changes at the point of sale and would add unwanted friction in the payment process for consumers. The impact in terms of investment and change would be similar in size to the £1bn Chip & PIN rollout in the UK. Combined with the requirements for application selection, electronic and visual identification, the operational impacts could threaten the interoperability of cards and terminals to a point where card transactions become less attractive to retailers and consumers alike.

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