Visa Follows Mastercard’s Lead, Increases UK-EU Interchange Fees


Visa is all set to increase its interchange fees on cross-border transactions between the U.K. and EU post-Brexit. Let’s understand how Visa’s decision will impact retail merchants and end consumers in 2021.

Visa is all set toOpens a new window hike the ‘interchange fees’ it charges on behalf of banks on transactions between the United Kingdom (U.K.) and European Union (EU) countries. The fee change is expected to take effect in October 2021. Visa is also planning to increase the fees on payments made within the U.K. with British credit cards.

For online transactions or telephone payments between the U.K. and the EU, Visa will charge 1.5% of transaction value, up from 0.3%. Meanwhile, it will charge 1.15% for debit card payments on every transaction, up from 0.2%.

Craig Beaumont, head of external affairs for England’s Federation of Small Business, in response to news of the planned fee hikes, said, “With the move to cashless and ecommerce accelerating, it’s vital that small business and consumer sentiment isn’t stifled by rising card costs, just as we’re trying to bounce back from a severe recession.”

A company spokesman stressed on the fact that their payment network was focused on balancing the needs of all participants in the ecosystem. He also said that the company expects each participant to benefit from the ability to use and accept digital payments. Citing these efforts, Visa has continued to be one of the most cost-effective and secure ways to pay and be paid, the spokesman said.

Also Read: JPMorgan Chase Winds Down Its Digital Wallet

Mastercard Pushes Fees for UK-EU Transactions

MastercardOpens a new window announcedOpens a new window a similar fee hike in January 2021. The company raised the interchange fees it charges for EU merchants when U.K. cardholders purchase goods and services from them (online). The changed fee is five times what it was earlier. The move came at the backdrop of Britain withdrawing from the EU.

The change affects the “interchange” fees Mastercard sets on behalf of big banks so that its customers can use their payment networks. Mastercard said that the change in fees would only affect online sales, but the “in practice” U.K. consumers would not notice this change.

Comparison of the Old and New Interchange Rates Charged to EU Merchants (Mastercard)
Source: CMSPIOpens a new window

The EU introducedOpens a new window interchange fees on behalf of banks in 2015 following complaints about hidden fees and higher prices. This saved merchants about €1.2 billion and consumers between €864 million and €1.9 billion. Mastercard opined that purchases made between the U.K. and the European Economic Area (EEA) are now considered inter-regional post-Brexit. And hence, with the end of the Brexit transition period, the cap was no longer applicable to many payments between the U.K. and EEA (including Iceland, Liechtenstein, and Norway).

“As a result of the U.K. leaving the EEA, Mastercard will adapt interchange rates on U.K. cards to the commitments it gave the European Commission in 2019 for non-EEA card transactions,” the company said.

Also Read: The Role of Peer-to-Peer Lending in Fintech

Visa Faces U.S. Antitrust Investigation Over Debit Card Practices

Meanwhile, the Wall Street Journal reportedOpens a new window that the U.S. Department of Justice had initiated an antitrust investigation into Visa Inc.’s practices regarding debit-card transactions.

The antitrust arm of the U.S. Department of Justice (DoJ) is seeking data to identify whether Visa has restricted merchants’ ability to send debit transactions through less expensive networks. The investigation is reportedly focused on online transactions, but in-store payments have also been looked into. The DoJ’s representatives declined to comment on these matters.

In a regulatory filing Friday afternoon, Visa said, “The U.S. Department of Justice has informed Visa of its plans to open an investigation into Visa’s U.S. debit practices” and is cooperating with the department. The company also opined that Visa’s U.S. debit practices comply with the applicable laws.

In 2020, the department filedOpens a new window an antitrust lawsuit to block a $5.3 billion deal the network had signed with fintech startup Plaid Inc. The department reasoned that the combination would limit competition in the market for online debit-card transactions. Ultimately, Visa and Plaid abandoned the deal. Besides, Visa witnessedOpens a new window the biggest one-day decline in its shares in almost a year as its shares slumped 6.2% to $206.90 on Friday.

Also Read: Walmart Inches Closer to Its Fintech Ambitions

In Conclusion

The U.K. and EU await the settlement of the long interchange fee litigation cases. However, this fee increment pattern does not appear to slow down as Visa echoes Mastecard’s call for fee change. Considering this scenario, retailers must optimize their card acquiring arrangements, at least in the short term. In the long term, however, proper regulation may solve the problem of ever-swelling card fees. 

Do you think increasing interchange fees will put a huge burden on businesses in the U.K. and the EU from here on? Comment below or let us know on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window . We’d love to hear from you!