Visa to join Mastercard in hiking interchange fees for UK shoppers

Regulators have been urged to crack down on ‘profiteering’ by Britain’s two largest card providers after Visa appeared to be joining Mastercard in massively hiking interchange fees after Brexit.

Purchases made from European shops by UK shoppers will be subject to a fivefold increase in fees if they pay by credit card and a 475 per cent rise if they pay by debit card, according to Sky News.

These fees are charged to retailers by their banks every time a card purchase is made to cover the cost of the transaction and are passed on to the bank which issues a shopper’s card.

Visa is the UK’s largest card provider and could be set to follow Mastercard in hiking interchange fees by as much as 475% later this year

Interchange fees have previously been capped by the European Commission but the UK is no longer covered by ‘intra-regional’ caps as it is no longer a member of the EU. 

Instead, the likes of Mastercard and Visa can charge a higher ‘inter-regional’ rate of up to 1.5 per cent on credit card purchases and 1.15 per cent on debit card purchases. On the latter, this is a rise from the current 0.2 per cent.

This rate will apply to online purchases made by shoppers using UK-issued cards from retailers based in the European Economic Area, which includes the 27 EU member states plus Norway, Iceland and Liechtenstein.

Mastercard previously announced in January it would hike fees from 15 October. But Visa’s announcement is likely to have a much bigger impact as it is by far the UK’s biggest card issuer.

It had an 84 per cent share of the UK card market prior to Mastercard inking a deal to provide cards for NatWest, although it will still have around a 73 per cent share of the market, according to the payment consultancy CMSPI.

Visa has refused to comment on the news publicly, but it is believed that the higher fees, which will be the same as Mastercard’s, could be introduced to its clients in six months’ time.

Mastercard said in January that as the UK was no longer part of the EU it would increase the fees it billed European merchants from October

Mastercard’s hike is estimated to cost European merchants an extra €16.55million, or £14.18million, a year, with businesses in nations like Germany and Italy which export to the UK the worst hit, CMSPI said.

And while Mastercard said that ‘consumers should not feel any impact of changes’ as they relate to ‘fees paid between merchants and banks for the provision of payments’, shoppers already struggling with Brexit-related red tape could be left out of pocket.

The move will likely hit online purchases the most, especially in the form of retail, travel and hospitality. 

Kevin Hollinrake, the Conservative MP who chairs the All-Party Parliamentary Group on Fair Business Banking, said the charges would ‘inevitably be passed on to consumers’.

Mastercard has struck a deal to provide the cards of NatWest but Visa still retains an overwhelming share of the UK card market

He called the news of Visa’s reported hike ‘entirely wrong and without justification’ and called for ‘the Financial Conduct Authority to step in and prevent this kind of profiteering.’

Mr Hollinrake said the Mastercard announcement in January smacked of ‘opportunism’ and urged 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.’

Although Britons may believe this will hit small and medium-sized European exporters hardest, ‘the vast majority of transactions conducted cross-border in this way are actually with multinational groups’, according to the Financial Times.

Conservative MP Kevin Hollinrake said the move smacked of ‘profiteering’ and called for regulators to step in 

Online shopping giant Amazon, for example, routes UK orders through its Luxembourg subsidiary.

Adam French, from the consumer group Which?, said: ‘It is disappointing that Visa has followed Mastercard in increasing its interchange fees when we shop with EU-based businesses. 

‘Since the end of the transition period, we have had to come to terms with a confusing array of new fees and rules and if the increase to interchange fees is passed on to consumers via the price of goods, it will be yet another blow.

‘The Government must be transparent about how new rules and regulations will impact the money in your pocket and work to address gaps in cross-border consumer protections that emerge – in this case, the protection we could lose from the cap on interchange fees that was in place.’

Visa declined to comment.