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24 December 2007
MasterCard has been told that it has to scrap the fees that it charges to retailers for cross border transactions in Europe – a move that could save European retailers around ten billion Euros a year. The order has been given by the competition watchdog in Europe, and many experts state that this move could lead to credit and debit card fees being cut within the UK.
The European competition watchdog stated that these cross border fees has resulted in inflated prices on products for a decade and a half. However, some industry officials are sceptical about whether scrapping the charges will actually benefit the consumer or will simply benefit retailers with none of the cost difference being passed on to consumers. It has been reported that a similar move in Australia only benefited retailers and not consumers.
At present MasterCard charges between 0.4% and 1.2% to retailers on international transactions made with MasterCard or with Maestro credit and debit cards. This is described as a multilateral interchange fee. According to the European competition commissioner this meant that consumers were ending up paying the bill "as they risk paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices paid not only by card users but also by customers paying cash".
MasterCard is not best pleased about the order, and plans to appeal the order to cut these fees. However, if MasterCard does not comply with the order it could face being fined 3.5% of its global daily turnover. It is thought that the decision will also affect the biggest rival of MasterCard, Visa. Domestic card transactions in Belgium, Ireland, Italy, the Czech Republic, Latvia, Luxembourg, Malta and Greece will also be affected.
An official from Tesco stated: "Tesco pays about £100 million in fees to the banks for processing credit and debit cards - that’s £100 million that we haven't been able to invest in price, range or service for our customers." However, a MasterCard official stated: "We don't anticipate any significant near-term financial impact from today's decision."
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