Balancing Competition, Innovation, and User Interests: Rethinking Interchange Fee Regulation in the Digital Payments Era

Abstract

This article examines the Payment Systems Regulator’s (PSRs) proposal to cap interchange fees on UK–EEA cross-border card transactions, with particular focus on the judicial review initiated by Revolut and Visa. While the proposal has been challenged on the grounds that it exceeds the PSR’s statutory powers under the Financial Services (Banking Reform) Act 2013, the discussion situates the issue within the broader domain of financial regulatory law rather than the narrower framework of general administrative law. The article assesses the PSR’s statutory objectives, the legality and reasonableness of the proposed cap, and the institutional challenges of regulating prices in a highly concentrated payments market dominated by international card schemes. It explores the tensions between the PSR’s duties to promote competition, protect users, and foster innovation, highlighting the complex trade-offs inherent in price-based regulatory interventions. A comparative analysis of the EU Interchange Fee Regulation (IFR), the US Durbin Amendment, and Australian and Canadian regimes highlights three distinct approaches – rigid caps, hybrid models, and dynamic frameworks. The article argues that a more adaptive hybrid model, anchored in explicit legislative authorization, proportional design, and periodic review mechanisms, would offer a more balanced and sustainable regulatory response for the postBrexit UK.