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| Retailers v MasterCard and Visa in battle of the fees | Retailers v MasterCard and Visa in battle of the fees |
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| Are MasterCard and Visa ripping us off every time we make a payment using a debit or credit card? In a class action that makes the battle fought by Erin Brockovich look like peanuts, American retailers last year secured a giant $7.25bn payout from payment processors and card issuers after a bitterly-fought legal tussle. Europe is battling hard, too, with a lengthy EU probe into "anti-competitive" behaviour expected to reach a culmination this summer, while Australia has imposed fee caps and stiff regulations. | Are MasterCard and Visa ripping us off every time we make a payment using a debit or credit card? In a class action that makes the battle fought by Erin Brockovich look like peanuts, American retailers last year secured a giant $7.25bn payout from payment processors and card issuers after a bitterly-fought legal tussle. Europe is battling hard, too, with a lengthy EU probe into "anti-competitive" behaviour expected to reach a culmination this summer, while Australia has imposed fee caps and stiff regulations. |
| The fight pitches giant conglomerates such as Wal-Mart and supranational regulators, against card companies which have become monster-sized themselves. Visa handled $6.3tn in payments last year, MasterCard another $3.6tn, on over four billion cards across the globe carrying their logos. No wonder the battle is being called "world war fee". | The fight pitches giant conglomerates such as Wal-Mart and supranational regulators, against card companies which have become monster-sized themselves. Visa handled $6.3tn in payments last year, MasterCard another $3.6tn, on over four billion cards across the globe carrying their logos. No wonder the battle is being called "world war fee". |
| At issue are what are known as interchange fees. These are not the card surcharges applied by budget airlines to bump up their revenue, loathsome as they are. They are the fees set by Visa and MasterCard, which are paid by the bank that issues the card, but are then passed on to retailers – and, inevitably, through to consumers. | At issue are what are known as interchange fees. These are not the card surcharges applied by budget airlines to bump up their revenue, loathsome as they are. They are the fees set by Visa and MasterCard, which are paid by the bank that issues the card, but are then passed on to retailers – and, inevitably, through to consumers. |
| In the US, Visa and MasterCard were accused of "excessive fees" and "opaque business practices". Meanwhile, last week the EU's second highest court found that MasterCard overcharged for cross-border transactions (it is yet to say if it will appeal). | In the US, Visa and MasterCard were accused of "excessive fees" and "opaque business practices". Meanwhile, last week the EU's second highest court found that MasterCard overcharged for cross-border transactions (it is yet to say if it will appeal). |
| What is "excessive" about the fees? In the US, the average cost to a shop when they accept a credit card is 2%. Considering how we're so accustomed to "rip-off Britain", it's remarkable that the average fee here is much lower, at 0.79%. No issue then? Yes, until you look at the fact that on the continent shops pay around 0.3% – so we are paying twice as much as the French. | What is "excessive" about the fees? In the US, the average cost to a shop when they accept a credit card is 2%. Considering how we're so accustomed to "rip-off Britain", it's remarkable that the average fee here is much lower, at 0.79%. No issue then? Yes, until you look at the fact that on the continent shops pay around 0.3% – so we are paying twice as much as the French. |
| There is talk of regulators capping interchange fees, possibly at 0.3%. But will that make shoppers better-off? MasterCard is adamant we'll all be losers – issuing dark warnings that slashing interchange fees could even mean the end of free banking on current accounts, and no more freebies on credit cards, such as cashback or Air Miles. Of course, they would say that, wouldn't they, although they do have some evidence. | There is talk of regulators capping interchange fees, possibly at 0.3%. But will that make shoppers better-off? MasterCard is adamant we'll all be losers – issuing dark warnings that slashing interchange fees could even mean the end of free banking on current accounts, and no more freebies on credit cards, such as cashback or Air Miles. Of course, they would say that, wouldn't they, although they do have some evidence. |
| In the US, where Congress introduced legislation that halved interchange fees on debit cards, studies suggest retailers are pocketing the gain and passing nothing on to consumers. "Customers paid an average of 1.5% more for the same products at retailers after the new rules entered force," concluded a report by Edgar, Dunn & Company. | In the US, where Congress introduced legislation that halved interchange fees on debit cards, studies suggest retailers are pocketing the gain and passing nothing on to consumers. "Customers paid an average of 1.5% more for the same products at retailers after the new rules entered force," concluded a report by Edgar, Dunn & Company. |
| However, it's a payments consultancy, and you might want to read its report in the light of the fact that its clients include the card issuers. The British Retail Consortium calls the card companies' stance "scare tactics" and "profit protection." | However, it's a payments consultancy, and you might want to read its report in the light of the fact that its clients include the card issuers. The British Retail Consortium calls the card companies' stance "scare tactics" and "profit protection." |
| What is the right outcome for consumers? The truth is, nothing's really working. Ultimately the banks, processors and retailers share the same interest – their shareholders and bonuses, not the customer. If the regulators give Visa and MasterCard a spanking, they need also to devise a way to make sure the money doesn't just end up in someone else's pocket. • In 1995, as a fresh-faced young reporter on an investment trade magazine, I went on my first international press trip, to Hong Kong, ahead of its transition to Chinese control. | What is the right outcome for consumers? The truth is, nothing's really working. Ultimately the banks, processors and retailers share the same interest – their shareholders and bonuses, not the customer. If the regulators give Visa and MasterCard a spanking, they need also to devise a way to make sure the money doesn't just end up in someone else's pocket. • In 1995, as a fresh-faced young reporter on an investment trade magazine, I went on my first international press trip, to Hong Kong, ahead of its transition to Chinese control. |
| The place was buzzing. Shenzhen, just across the border, was a marvel. But as we visited fast-growing companies and factories, it struck me that everything was "in the price" of shares, which had already shot up in value. The Hang Seng stock market index was at 9,000, three times the level it had been five years earlier. | The place was buzzing. Shenzhen, just across the border, was a marvel. But as we visited fast-growing companies and factories, it struck me that everything was "in the price" of shares, which had already shot up in value. The Hang Seng stock market index was at 9,000, three times the level it had been five years earlier. |
| I proudly filed a report warning investors of the dangers of an out-of-control bubble. Hopefully, few people read it. Within two years the Hang Seng was trading at a level of 22,000. | I proudly filed a report warning investors of the dangers of an out-of-control bubble. Hopefully, few people read it. Within two years the Hang Seng was trading at a level of 22,000. |
| It taught me two lessons. Firstly, never issue predictions of where markets are going. Secondly, asset price bubbles don't stop at mad levels, they move onwards into sheer lunacy. Are we in a bubble right now? Don't ask me... | It taught me two lessons. Firstly, never issue predictions of where markets are going. Secondly, asset price bubbles don't stop at mad levels, they move onwards into sheer lunacy. Are we in a bubble right now? Don't ask me... |
| Top credit cards | Top credit cards |
| BARCLAYCARD | BARCLAYCARD |
| NATWEST | |
| ROYAL BANK OF SCOTLAND | |
| Powered by MoneySupermarket for the Guardian | Powered by MoneySupermarket for the Guardian |