Mastercard has announced that it will be raising its fees by as much as 5x its current charges whenever UK cardholders order goods and services from the EU.
The credit card giant is increasing the “interchange fees”, set by the provider on behalf of banks. The current rate stands at 0.3% after a 2015 cap on fees was set by the EU. However, from October, Mastercard recently announced that it will up its interchange fees to 1.5% on every transaction.
If merchants pass on the increase to consumers it could raise the price not just of goods and services in general, but also airline, hotel and holiday companies which are based in the EU. Even shopping empire Amazon could be affected, as most payments are processed via its Luxembourg headquarters.
The announcement has sparked fears that consumer prices could rise if merchants choose to pass on those costs, especially on items not available from UK retailers.
Mastercard said the change was a consequence of Brexit and Britain deciding to leave the European Union (as the cap no longer applies to payments between the UK and European Economic Area), however its rival Visa has not yet suggested any similar plans although it is said to be keeping the news “under review”.
In a statement, Mastercard said, “As a result of the UK leaving the EEA, Mastercard will adapt interchange rates on UK cards to the commitments it gave the European Commission in 2019 for non-EEA card transactions,” the company said.
“In practice, only EEA merchants making e-commerce sales to UK cardholders will see a change.”
However, Lars Trunin, Head of UK Product at TransferWise believes Open Banking could be the answer. He said, “To consider increasing the cost of card payments fivefold is genuinely staggering, and cannot be seen to be anything other than unprincipled. But this move, while disappointing, could accelerate the uses and demands of Open Banking.
“Open Banking could remove interchange fees completely by providing a viable alternative to card payments through bank to bank payments, and Faster Payments could be the rails for this alternative scheme. Merchants could then provide a payment method that is incredibly low-cost, and gives them access to funds immediately, creating a system that rivals traditional card payments for both parties.
“For online payments, there is absolutely no reason why merchants and consumers can’t benefit from this right now. The systems are in place, and only need merchants to engage with it to create a smoother and cheaper process for everyone. However, when it comes to in-store card payments, the UK landscape needs to significantly evolve to reach the same position. While the UK leads the way when it comes to Open Banking maturity, bank transfers still need to translate to point of sale transactions before we can make this a reality for ‘real world’ payments.
“Greater competition and choice for both issuers and merchants should lead to a more competitive environment, driving down costs for this infrastructure. A move that clearly needs to take place soon, to avoid fee hikes from expensive payment oligopolies.”