By Iain Withers

The Payment Systems Regulator (PSR) said a cap would protect businesses from overpaying, after it published interim findings of a market review on interchange fees charged since Brexit, when the bloc's longstanding cap ceased to apply in Britain.

UK lawmakers had piled pressure on the PSR to consider re-introducing a cap in Britain, and the watchdog said last year it would conduct two market reviews, but that an outcome could take years.

The PSR said the review focused on charges set by Mastercard and Visa, as they account for 99% of debit and credit card payments in the UK.

The watchdog said both companies had likely raised fees to an "unduly high level", costing UK businesses an extra 150-200 million pounds ($190-250 million) last year due to fee increases, with the charges potentially passed on to consumers.

"In short, at this stage, we do not think this market is working well," PSR managing director Chris Hemsley said in a statement.

Under the proposals, the PSR would impose an initial time-limited cap of 0.2% on UK-European Economic Area debit transactions and 0.3% on credit transactions. A lasting cap would then be imposed once further analysis is carried out.

A spokesperson for Visa said the company strongly disputed the findings of the PSR's interim report and said the proposed remedies were "not justified".

"Accepting reliable, secure, and innovative digital payments represents enormous value to UK businesses, especially when selling overseas," the spokesperson said.

"These interchange rates apply to less than 2% of UK card payments - European (EEA) cardholders buying online from a UK seller - and reflect the fact that these transactions are more complex and carry far greater risk of fraud."

Mastercard said interchange fees reflect value in an extremely competitive market. "We do not agree with the PSR's findings and will continue to educate them on the critical importance of electronic payments to the UK economy," a spokesperson said.

The PSR is inviting feedback on the proposals until the end of January, with a final report due in the first quarter of 2024.

A government commissioned report last month said Britain needs a "digital alternative" to relying on Visa and Mastercard regardless of what the PSR does, echoing longstanding ambitions in the EU for a "home grown" alternative to the American duo that has yet to emerge.

($1 = 0.7990 pounds)