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Card interchange fees are anti-competitive by incentivising high costs, inhibit innovation by providing little incentive for issuers to innovate with new payment methods and harm end-users who over-pay for goods and services and without their knowledge.

Although I am the last person to encourage regulation, given these points, the PSR is perfectly within its right to cap interchange fees, epecially since its objectives are to enable competition, innovation and end-user benefits.

The issue with interchange is the payers who ultimately pay it, consumers, have no choice in the matter and no knowledge of it. Interchange is set by card networks, disbursed to card issuers (who naturally choose the card network with the highest interchange), paid by acquirers who have no choice but to pay it, who collect it from merchants (the same, regardless of which acquirer they choose) who include it in the price of their goods and services paid by consumers.

Instead of caps, an alternative remedy would be to require merchants to separate the acquiring fee they pay on each sale from the sales price, charge it separately and display it on POS receipts and online checkouts. 

Thus, consumers would see the cost of the payment method they use and pay for it. As well as being fairer, through eliminating the subsidy of consumers with high cost credit and charge cards (gold, platinum etc) by those using low cost debit cards, this would encourage competition between different types of card and between different payment methods. In turn, this would lead to innovation with improved and new payment methods, benefiting consumers and society as a whole.

mmm - this report looks very odd:

"Regulators such as the FCA and PSR should push forward innovation and competition in the sector" - how can they? It's like asking a football or rugby referee to make games more competitive or the players more creative.

"Promote further financial inclusion by diversifying payments services" - with a population of 68m, over 100m current accounts and 162m debit cards and credit cards in circulation, financial inclusion is hardly a problem in the UK.

"We certainly don’t want to see the UK fall behind in the realm of payments" - the UK fell behind about 10 years ago, look to China, Thailand, India and Brazil among others to see who are the leaders and how far ahead they are.

If this report reflects the UK payments industry, it has very sadly lost its way.

The request for a combined processor of pay-by-bank and cards is a growing trend, with some interesting dynamics.

Will open banking PISP aggregators partner with card acquirers, will they build/buy their own card capabilities or will there be mergers between the two? Often acquirers offer pay-by-bank services, but it is a side show compared to their card volumes and it is also a risk that may cannabalise higher margin card volumes - cards and pay-by-bank are uneasy bedfellows, no doubt AIS data insights will be used to differentiate deals.