25 July 2016
Find out more

Office of Fair Trading says MasterCard fees are anti-competitive

11 February 2003  |  5157 views  |  0 Mastercard point of sale

The UK's Office of Fair Trading has ruled that interchange fees charged by MasterCard member banks for credit and charge card purchases are anti-competitive.

The competition watchdog says MasterCard has been taxing shoppers and infringing anti-trust rules through the imposition of unreasonably high multilateral interchange fees.

"The cost of these fees is borne initially by retailers' banks, but is passed on to retailers and, in turn, to consumers through higher retail prices," says the OFT in a preliminary statement. "In effect, these fees act like a tax on retail transactions that is paid by all consumers in shops that accept credit cards."

The decision could cost MasterCard and its member banks millions of pounds in lost revenue. In 2001, purchases in the UK paid for by using credit and charge cards were worth £94 billion, with £30 billion spent on MasterCard branded cards.

Commerzbank Securities estimates that the UK banking industry earned £819 million through interchange fees in 2001. Analysts believe the 1.1% levy currently charged could be reduced by as much as five basis points, reducing industry revenues by about £160 million a year.

The OFT has given MasterCard until spring 2003 to propose changes to the existing agreement with banking members. Failure to do so will result in the regulator taking infringement action against the card scheme.

While Visa recently escaped a similar judgement on cross-border fees in the European Commission, the OFT notes that its ruling applies only to domestic transactions in the UK market.

The card schemes are facing legal challenges on a number of fronts. In the US, the companies are battling a class action lawsuit brought by a powerful group of retailers complaining about debit card charges. They have also lost a preliminary hearing relating to the inadequate disclosure of fees imposed on cardholders for currency conversions.

In Australia, both Visa and MasterCard have formally challenged a decision by the Reserve Bank of Australia to mandate a decrease in interchange fees. The changes in this market have forced banks and retailers to rethink their strategies and look again at the price/performance of customer loyalty programmes and other cardholder incentive schemes.

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

Triple figure growth in European online sales - Visa EU

Triple figure growth in European online sales - Visa EU

10 February 2003  |  4485 views  |  0 comments
MasterCard targets Europe's small businesses

MasterCard targets Europe's small businesses

20 January 2003  |  3161 views  |  0 comments
Visa counts the cost of Britain's Christmas

Visa counts the cost of Britain's Christmas

23 December 2002  |  3100 views  |  0 comments

Related blogs

Create a blog about this story (membership required)
Visit VocaLink.comVisit capgemini.comFind out more

Who is commenting?

A Finextra member Finextra Member Commented on: UK startups get Brexit...
A Finextra member Finextra Member Commented on: Apps crush internet fo...

Top topics

Most viewed Most shared
MasterCard agrees £700m VocaLink acquisitionMasterCard agrees £700m VocaLink acqu...
8954 views 14 comments | 32 tweets | 37 linkedin
satelliteContactless Bitcoin startup Plutus Tap &am...
8788 views comments | 9 tweets | 3 linkedin
hands typing furiouslyWhat Every FinTech CEO Should Know About R...
8554 views 0 | 15 tweets | 8 linkedin
hands typing furiouslyBanking on IoT: Security in the Internet o...
8425 views 3 | 20 tweets | 7 linkedin
Santander doubles down on fintech fundSantander doubles down on fintech fund
7834 views comments | 22 tweets | 28 linkedin

Featured job


Brussels (Belgium) or Paris (France)

Find your next job