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Mastercard hikes interchange fees for UK online purchases from the EU

Mastercard hikes interchange fees for UK online purchases from the EU

Mastercard has imposed a five-fold increase on credit card interchange fees charged for UK online purchases from the EU, following Britain's withdrawal from the European Union.

Prior to Brexit, UK merchants and card holders benefitted from a 0.3% cap on credit card intechange fees imposed by the European Commission.

But with the country withdrawing from Europe, these fees wil increase to 1.5%, as payments between the UK and the European Economic Area are now deemed “inter-regional”.

The fee for debit card payments is also set to rise from 0.2% to 1.15%.

The increase in fees, set for introduction on 15 October, is another blow to UK merchants and consumers, who are already struggling with reams of red tape covering VAT and customs charges for exports and deliveries to European markets.

MP Kevin Hollinrake, who chairs the all-party parliamentary group on Fair Business Banking, said the move "smacks of opportunism".

"I would urge the regulators to step in as a matter of urgency to ensure that financial institutions do not use Brexit as an opportunity to hike up costs that consumers will ultimately bear," he told the FT.

In response, Mastercard points out that this level of interchange is paid by EEA merchants on all cards issued outside of the EEA, and there is no evidence European businesses charge consumers in these markets higher prices than consumers in the EEA as a result.

“As a result of the UK leaving the European Economic Area (EEA), Mastercard will adapt interchange rates on UK cards to the commitments it gave the European Commission in 2019 for non-EEA card transactions," states the card scheme. "In practice, only EEA merchants making e-commerce sales to UK cardholders will see a change. Interchange is not a consumer facing cost but the fees paid between merchants and banks for the provision of payments. Consumers should not feel any impact of changes in interchange fees.”

Comments: (11)

John Brawley
John Brawley - Elavon - Glasgow 25 January, 2021, 12:131 like 1 like

Total opportunism.  No need for this punitive hike! 

Gerard Hergenroeder
Gerard Hergenroeder - Payments Shark - Millersvile 25 January, 2021, 12:502 likes 2 likes

There are alternatives to Visa and Mastercard. It only takes a few large merchants to opt for new payments schemes. Let the free market figure this out, not government!

Roberto Garavaglia
Roberto Garavaglia - Innovative Payments Strategy Advisor - Milan 25 January, 2021, 15:441 like 1 like

This is just the first (so far ...) impact on Digital Payments market due to the Brexit I've envisioned one year ago: 

https://www.finextra.com/blogposting/18455/brexit-and-digital-payments-what-are-the-impacts-for-the-future

Lu Zurawski
Lu Zurawski - Lu Zurawski - London 25 January, 2021, 18:462 likes 2 likes

Great. Loads of tedious new thinking needed now - i UK being out of EU now means the Interchange Fee cap ruling no longer applies (obviously not), then presumably the same rules that prevent merchant surcharging also no longer apply. So will Brits now need to get used to seeing a few more checkouts containing an apologetic "Je regrete mais ce ca le UK customer 1% surcharge..." message? 

A Finextra member
A Finextra member 26 January, 2021, 13:14Be the first to give this comment the thumbs up 0 likes

Actually, the "damaged" parties are the EU merchants and the EU merchant acquirers. Interchange passes from acquirer to issuer so the UK issuer will benefit and the UK consumer would suffer only if the merchant chooses to raise prices

Lu Zurawski
Lu Zurawski - Lu Zurawski - London 26 January, 2021, 13:30Be the first to give this comment the thumbs up 0 likes

Consumers will suffer eventually. Obviously the merchants will be the first to recognise a 1% hit to profits. But they'll soon either (a) consider a "no UK cards" policy (if that's also now allowed - I'm no longer sure!).  Then (b) they may ask their payment provider for some form of easy/transparent surcharge facility. Processors and acquirers better get their fees and billing system systems dusted-down.

Roberto Garavaglia
Roberto Garavaglia - Innovative Payments Strategy Advisor - Milan 26 January, 2021, 13:541 like 1 like

@Lu Zurawski, both the options you mention are valid, since UK cards (issued by an UK issuer or acquired by an UK acquirer) and the payments that belongs them, is now outside the scope of EU Regulation 2015/751 (the so called "IFR - Interchange Fee Regulation).

More precisely:
(a) "no UK cards" policy doesn't contrast with the HAC rules, since the 4party scheme's card are issued by a not-EU issuer (the UK issuer after Brexit);
(b) Surcharge is admitted for 4party scheme's card merchant would accept, cause of such cards are issued by a not-EU issuer (the UK issuer after Brexit).

A Finextra member
A Finextra member 26 January, 2021, 17:31Be the first to give this comment the thumbs up 0 likes

As if merchants (on either side of the channel) haven't been kicked in the teeth enough as a result of Covid, this just adds further complexity and cost which no-one needs. While MC are within their rights to re-classify these card types from Intra-regional to Inter-regional, what is the point of doing it? It only benefits the card issuers - at the cost of the merchant (and ultimately the consumer).

Bill Trueman
Bill Trueman - Riskskill.com - London 08 February, 2021, 15:26Be the first to give this comment the thumbs up 0 likes

@Lu @Roberto - Did the UK not import the 'no  surcharging' law into the Payment Services Regulations - i.e. into UK law though?

 

Roberto Garavaglia
Roberto Garavaglia - Innovative Payments Strategy Advisor - Milan 08 February, 2021, 21:58Be the first to give this comment the thumbs up 0 likes

@Bill, my two clarifications are only referred to EEA's countries, where a UK card is accepted.

Lu Zurawski
Lu Zurawski - Lu Zurawski - London 08 February, 2021, 22:452 likes 2 likes

@Bill, we'll have to rely on Roberto's expertise here. (I'm still waiting for delivery of a new quantum computer capable of modeling all the new scenario permutations). 

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