Mastercard will increase fees more than fivefold when a British shopper uses a debit or credit card to buy from an EU-based company, sparking alarm among companies that rely on online payments and concern among MPs over higher consumer prices.
Mastercard and Visa levy an “interchange” fee on behalf of banks for every debit or credit card payment that uses their networks. The EU introduced a cap in 2015 after concerns the hidden fees were leading to hundreds of millions of euros in costs for companies and higher prices for consumers.
But Mastercard has told merchants that the cap no longer applies to some transactions post-Brexit, because payments between the UK and European Economic Area are now deemed “inter-regional”.
From October 15, Mastercard will charge 1.5 per cent of the transaction value for every online credit card payment from the UK to the EU, up from 0.3 per cent at the moment. For debit card payments, the fee will jump from 0.2 per cent to 1.15 per cent. The increase will benefit British banks and other card issuers, rather than Mastercard itself.
Consumers will face higher costs if companies choose to pass on the fee, a further burden on purchasing products from EU-based companies. Extensive red tape has already been imposed on buying and selling products between the UK and EU after Brexit, alongside customs and VAT charges.
Domestic purchases from Amazon UK, for example, normally go through a Luxembourg-based company. One person familiar with its plans said the ecommerce giant could shift where the UK store is located under card network rules to avoid the fee increase on its merchants.
“Some people might put this change down to Brexit, but it is actually just greed. It is well within the power of the card schemes to make merchants’ lives easy and keep things operating as they were pre-2021,” said Joel Gladwin, head of policy at the Coalition for a Digital Economy, which represents British start-ups.
“Not only does this hurt the already squeezed bottom lines of ecommerce start-ups and subscription businesses, it comes at a time when a huge number of small businesses have shifted to online models to survive.”
The move also affects services provided by companies with EU-based operations that consumers may not realise are international transactions.
Callum Godwin, chief economist at CMSPI, the global payments consultancy, said that industries such as airlines, hotels, car rentals and travel groups would be hit by the move — “anywhere the consumer is in the UK and the merchant is in the EU”. He said that was particularly bad for these industries, which had already been hit by Covid lockdowns and could not afford the further losses.
Mastercard processes the majority of credit card transactions in the UK, and a growing proportion of debit card payments.
Visa, which leads in the debit card market, has not announced any changes to its fees, but has not ruled it out. A spokesperson said “should any change to interchange be appropriate, Visa would aim to provide our clients with advance notice to help them plan ahead”.
Mastercard said the changes were designed to bring interchange rates in line with levels it had agreed with the European Commission for transactions from all non-EU areas in 2019.
One EU-based start-up that offers services to the UK said: “It seems very opportunistic. In the EU, they are very tightly regulated. But the UK has no similar legislation.”
The Treasury declined to comment.
Kevin Hollinrake, chair of the all-party parliamentary group on Fair Business Banking, said that the move was “alarming”.
He added: “This smacks of opportunism and I would urge the 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.”
After the new rules were brought in 2015, the commission found that merchants saved about €1.2bn, with estimated overall annual consumer cost savings of between €864m and €1.9bn.
MPs warned in 2019 that higher interchange fees could be passed on to UK businesses and consumers.