The evidence for capping fees on cross-border card payments is far thinner than the debate suggests
Buy a jacket from a German website with a British card and you are shown a single price. What you are not shown is the queue of charges behind it: a fee that passes between two banks, a fee to the card network, a processing fee, the margin taken by whoever runs the shop's terminal, a currency spread, compliance checks, the cost of holding money overnight in two countries, and fraud losses. The shop pays almost all of that and then quietly recovers it from you in the price of the jacket.
For thirty years, regulation has focused almost exclusively on one item in that queue: interchange, the fee the shop's bank pays to the cardholder's bank. Not the largest charge, nor the most obscure, but the easiest to identify and the only one already governed by rules. The results have been mixed at best.
There is a well-worn joke about a man hunting for his keys under a streetlight on the grounds that the light is better there. Payments regulation has been doing something similar since the 1990s. Cap interchange and interchange fees fall, promptly and measurably. The trouble starts outside the lit circle.
Europe’s own caps show how. They cut the targeted fee, but the savings leaked. The UK Payment Systems Regulator found that many smaller merchants received little or no pass-through savings. On the consumer side, losing interchange revenue led issuing banks to reprice basic products, raising monthly fees and restricting free account tiers. And network and processing charges climbed, adding at least £170 million a year to British business costs by the regulator’s own estimate.
That last increase is worth dwelling on, because of who collects it. Interchange is set by the card schemes but paid to the cardholder's bank; scheme and processing fees are set by the schemes and kept by them. Regulation has concentrated on the first and left the second alone. The cap therefore constrained a fee its setter never receives, while the fee its setter does receive stayed outside the rulebook entirely - and rose.
That gap widens on cross-border routes, where the unlit area is largest. They run through two legal systems, usually two currencies, two sets of compliance obligations and a longer chain of intermediaries, each taking a cut on the way past. Direction matters as well: a British card used in a Spanish shop is a different commercial proposition from a Spanish card used in a British one. When we set out the full cost of one of these cross-border payments, it has nine separate components. A cap on interchange impacts only one.
Almost everything known empirically about interchange regulation comes from domestic settings: the UK, US, Australia or the EU internal market. Ask what happens when a cap is applied to a cross-border route between independent jurisdictions, and there is virtually no research to draw on. Deciding on a cross-border cap today means extrapolating from a domestic market with one currency and one legal system to an international corridor that has neither.
The broader international track record offers little comfort. In 2021, the G20 set ambitious targets for cross-border retail payments: reducing total costs to under 1% on average, with no corridor above 3%, by 2027. Reviewing progress in late 2025, the Financial Stability Board found extensive international policy work, but only slight improvements in what end-users actually pay - concluding that the 2027 targets are unlikely to be met. Five years of policy has mostly produced more policy.
Before regulators set a rigid price ceiling, three structural steps are essential:
- Itemise the bill. Merchants should receive, and regulators should monitor, a per-transaction breakdown of every fee layer: interchange, network charges, processing, acquiring margins, and currency spreads. Today, many shopkeepers cannot tell what they paid or who received it. Nobody can shop around for a fee they cannot see.
- Fix the plumbing. A substantial share of cross-border payment cost is operational friction, not pure profit. Payments fail and are repaired manually because different countries format the same data fields differently. Adopting common data standards, enabling pre-validation before funds are sent, interlinking national fast-payment systems, and injecting competition into foreign exchange would strip real costs out of the system, rather than shuffling margins around inside it.
- Build real competition via Account-to-Account rails. Bank-to-bank transfers can become a genuine, low-cost alternative to legacy cards, but only if consumer protections, fraud allocation, and dispute resolution match what cards already offer. People will not switch to a cheaper payment route if it leaves them unprotected.
The ultimate goal of policy should be lowering the quality-adjusted total cost of a payment, not manipulating the label of a single fee inside it. The keys were never under the streetlight anyway.
Gilles Chemla is Professor of Finance at Imperial Business School and a Research Fellow at CNRS and CEPR.
Marco Di Maggio is Professor of Finance at Imperial Business School and a Faculty Research Fellow at the NBER.
Sources: Chemla, G., Di Maggio, M., Li, S., & Wang, J. (2026). The Incidence of Interchange Regulation [Working paper]. Imperial Business School. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7410038