Visa to join Mastercard in the exchange fee for UK shoppers hiking

Regulators have been urged to crack down on “profiteering” by Britain’s two largest card providers after it appeared that Visa joined Mastercard in dramatically increasing interchange fees post-Brexit.

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

This fee is charged to retailers by their banks each time a card is purchased to cover the cost of the transaction and is passed on to the bank issuing the shopper’s card.

The interchange fee is set by the European Commission, but the UK is no longer covered by the “in-area” hats as it is no longer a member of the EU.

Alternatively, the likes of Mastercard and Visa can charge a higher “regional” rate of up to 1.5 percent on credit card purchases and 1.15 percent on debit card purchases. Regarding the latter, this is up from the current rate of 0.2 percent.

This price 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 that it would raise fees starting October 15th. But Visa’s announcement is likely to have a much bigger impact as it is by far the largest card issuer in the UK.

It had 84 percent of the UK card market before Mastercard signed a deal to provide cards to NatWest, though it will still have about 73 percent of the market, according to payment advisory CMSPI.

Visa has declined to comment on the news publicly, but it is believed that the higher fee, which would be the same as MasterCard, could be offered to its customers within six months.

The MasterCard surge is expected to cost European merchants an additional €16.55m, or £14.18m a year, with businesses in countries such as Germany and Italy exporting to the UK the hardest hit, according to CMSPI.

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

The move is likely to impact online purchases more, particularly in the form of retail, travel and hospitality.

Kevin Hollenrek, the Conservative MP who chairs the all-party parliamentary group on fair business banking, said the charges “will inevitably be passed on to consumers”.

He called the news about Visa’s price hike “completely and without justification” and called on “the Financial Conduct Authority to step in and prevent this kind of profiteering”.

Mr Hollenrek said Mastercard’s announcement in January smacked of “opportunism” and urged regulators to “intervene urgently to ensure financial institutions do not use Brexit as an opportunity to raise costs that will ultimately be borne by consumers”.

Although the Brits might think this would hurt small and medium-sized European exporters more, “the vast majority of cross-border transactions in this way are in fact with multinational groups,” according to the Financial Times.

For example, online shopping giant Amazon directs orders in the UK through its subsidiary in Luxembourg.

Adam French, from consumer group Which?, said: “It’s disappointing that Visa is following Mastercard’s lead in increasing interchange fees when we shop with companies based in the EU.

Since the end of the transition period, we have had to come to terms with a bewildering array of new fees and rules, and if the increase in interchange fees is passed on to consumers through commodity prices, it will be another blow.

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

Visa declined to comment.