The Financial Times reports that Mastercard will raise fees to more than five times the current amount for British shoppers using a card to buy from EU-based companies, providing a timely reminder of the power card providers wield over customers reliant on them for payments.
Both Mastercard and Visa add an ‘interchange fee’ to every credit or debit card payment using their networks, and in 2015 the European Union introduced a cap on these fees in response to concerns that ‘hidden expenses’ for companies and consumers were reaching hundreds of millions of euros.
Post-Brexit, Mastercard has informed merchants this cap will no longer apply to certain transactions because payments between Britain and the European Economic Area are now technically ‘inter-regional.’ As a result, from 15 October 2021, Mastercard will charge 1.5 percent of each transaction’s value for every online credit card payment from the UK to the EU. This is a 500 percent rise over the present 0.3 percent charge. Debit card payments will increase from 0.2 percent to 1.15 percent.
This smacks of opportunism and I would urge the regulators to step in as a matter of urgency.
The FT notes the increased costs ‘will benefit British banks and other card issuers, rather than Mastercard itself.’ However, consumers will ultimately have to pay more if and when companies decide to pass these fees on to them, adding further disincentive to purchasing products from EU companies on top of the ‘red tape’ now imposed on buying and selling between the UK and EU, plus customs and VAT charges.
Visa—the market leader in debit cards—has not yet announced changes to its present fee structure, but has also not ruled them out, with a spokesperson explaining ‘should any change to interchange be appropriate, Visa would aim to provide our clients with advance notice to help them plan ahead.’
After the EU brought in the fee cap in 2015, the FT notes merchants saved around 1.2 billion euros, leading to annual savings to consumers of between 864 million and 1.9 billion euros.
When considered alongside the class action suit progressing against Mastercard that alleges the company overcharged 46 million people over the course of 15 years, it’s easy to see why cash remains a crucial element in the payments landscape. For consumers, paying in cash costs nothing, and entails no hidden fees for them or businesses.
Fortunately, both the UK Government and the European Central Bank are committing to safeguarding the future of cash, ensuring it is accessible to all as—in the words of the ECB—the only form of public money that provides ‘autonomy, privacy and social inclusion.’