Big change to shopping fees for millions after Visa and Mastercard hike rates FIVEFOLD – what it means for you
A BIG change to both Visa and Mastercard fees could save shoppers money.
The two payment processing businesses could soon face a cap on their cross-border interchange fees.
It comes after Britain’s payment watchdog raised concerns they have hiked charges to “an unduly high level”.
It comes after cross-border fees increased from 0.2% to 1.15% for debit cards and 0.3% to 1.5% for credit card transactions last year.
On a credit card payment worth £100, the fee would rise from £1.20 to £1.50, while for debit cards it would go up from 20p to £1.15.
The fees are charged to retailers but many fear they will be passed onto shoppers.
Since Brexit, UK-issued Visa and Mastercard fees are no longer limited to the European Economic Area established levels of 0.2-0.3%.
But now the Payment Systems Regulator (PSR) has said a cap would protect UK businesses from overpaying on fees charged on transactions made between the UK and the European single market.
It said UK firms paid an extra £150million to £200million last year alone due to five-fold fee increases pushed through by the card firms in 2021 and 2022.
The PSR said its findings so far suggest that the market is “not working well”, with UK firms having “little choice but to pay the increased costs”.
Visa said it “strongly disputes” the findings by the regulator and argued its proposed measures are “not justified”.
Mastercard and Visa cards account for nine out of ten online transactions at UK businesses using EEA-issued cards, according to the PSR.
It comes after the regulator launched a market review on interchange fees charged since Brexit when the European Union‘s rules on payments stopped applying to the UK.
Chris Hemsley, managing director at the Payment Systems Regulator, said: “In this market review we have provisionally found that the fees charged by Mastercard and Visa to UK businesses which accept payments from within the European Economic Area (EEA) are likely too high.
“In short, at this stage, we do not think this market is working well.”
He added: “Our interim report sets out a range of potential solutions which could be implemented.
“They are designed to make sure cross-border interchange fees are set at a level that better reflects the interests of all Mastercard and Visa users.”
The PSR is looking at introducing initial time-limited caps of 0.2% on (EEA) consumer debit transactions and 0.3% for consumer credit transactions, where the transactions are made online at UK businesses.
It plans to launch a long-term cap but will do further analysis to look at what the level should be.
It is now consulting on its plans until January 31 and plans to publish a final report in the first quarter of next year.
A spokeswoman for Visa said: “We strongly dispute the findings of the PSR’s interim report and believe that the proposed remedies are not justified.
“Accepting reliable, secure, and innovative digital payments represents enormous value to UK businesses, especially when selling overseas.
“These interchange rates apply to less than 2% of UK card payments – European (EEA) cardholders buying online from a UK seller – and reflect the fact that these transactions are more complex and carry far greater risk of fraud.”
It’s important to note that retailers aren’t charged cross-border fees when UK tourists shop abroad and present their card at local payment terminals.
And it doesn’t matter whether that payment is made through chip and pin, contactless or swipe.
How to avoid charges when spending abroad
If you like shopping online, using a credit card that doesn’t charge a cross-border retailer fee like American Express cards may be a better option – but look out for any other transaction fees.
Using PayPal to make purchases at foreign merchants online will also have lower cross-border retailer fees at 0.5%.
However, remember if you were to use PayPal you may lose out on valuable Section 75 refund protections offered by your credit card company.
There are also several ways to beat local charges tourists face when abroad.
Most standard bank accounts will charge you every time you tap your plastic in a different country so do your research and get yourself a fee-free debit card for abroad.
Chase and First Direct are safe options.
None of their debit cards have fees for spending or charges for withdrawing cash from an ATM when you’re overseas.
While the above debit cards are fee-free – the banks usually set daily limits on how much you can withdraw at ATMs. So make sure to read the T&Cs.