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Visa and Mastercard blame increased risk of fraud for post-Brexit fee hikes

Visa and Mastercard blame increased risk of fraud for post-Brexit fee hikes

Visa and Mastercard have cited fraud and increased competition to justify post-brexit fee increases on cross-border payments from the UK.

In October 2021, Visa and Mastercard increased cross-border interchange fees on purchases made by UK consumers to European businesses. Fees increased from 0.2 per cent to 1.15 per cent for debit cards and 0.3 per cent to 1.5 per cent for credit card transactions.

The move has caused uproar in UK parliament and led to a market review by the Payment System Regulator, which says that it has not seen “evidence that shows that there have been significant changes in the costs” for card issuers.

In July, the Treasury Select Committee wrote to the card schemes requesting a justification for the fee hikes.

In response to the Committee, both companies argue that higher fees are justified by the greater risk of fraud in cross-border transactions, and the costs incurred by banks to prevent and detect such crime.

Visa and Mastercard also point out that they do not benefit directly from fee increases, as it is a customer’s card issuer, rather than the card payment system, who receive the additional revenue from interchange fees.

Commenting on the responses, Mel Stride MP, chair of the Treasury Committee, says: “All businesses, particularly small and medium sized firms, are facing rising costs on many fronts, and the increase in cross-border card fees will only add to these pressures. It is vital that these businesses have every opportunity to succeed and are not burdened with disproportionate additional costs at this time.”

Comments: (3)

Jeremy Light
Jeremy Light - pingNpay - London 25 August, 2022, 17:501 like 1 like

"fraud and increased competition justifies fee increases"

This summarises neatly why cards are problematic.

1. card networks are inherently prone to fraud, amplified by digital uses, requiring evermore sophisticated, complex and expensive anti-fraud measures

2. interchange fees incentivise banks and others to issue a network's cards - hence, the higher the interchange the more a network's cards are issued. A great business model for the networks but to the detriment of retailers and in the end to consumers.

Card networks have massive network effects that will take years to unwind and replace with alternatives but in their current form they are ultimately unsustainable in a digital world.

However, it is best for market forces to cause a shift from cards rather than regulation such as capping fees. There is always the risk of unintended consequences with regulation, in this case the risk of reducing the imperative and urgency for retailers to innovate and adopt alternative payment methods better suited to the digital age. 

A Finextra member
A Finextra member 26 August, 2022, 02:25Be the first to give this comment the thumbs up 0 likes

Are the icreased costs on the european merchant accepting the UK card rather then on the UK merchant accepting an EU card? The EU cap of 0.2% and 0.3% would still apply to an EU card being used at a UK merchant, or am I missing something?

A Finextra member
A Finextra member 26 August, 2022, 08:42Be the first to give this comment the thumbs up 0 likes

I think Mastercard is applying higher interchange to EEA cards used with UK merchants but Visa is not.