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Visa and Mastercard in trouble over excessive fee charges

Credit card giants Visa and Mastercard have been accused of exploiting retailers by charging them excessive fees during the coronavirus. Professionals in the retail and hospitality industry have sought action from the UK government, demanding that this issue be addressed as soon as possible to prevent having to pass on the extra costs to customers. 

Visa and Mastercard in trouble over excessive fee charges
Rhea Tibrewala
· 3 min read

Credit card giants Visa and Mastercard have been accused of exploiting retailers by charging them excessive fees during the coronavirus. Professionals in the retail and hospitality industry have sought action from the UK government, demanding that this issue be addressed as soon as possible to prevent having to pass on the extra costs to customers. 

The British Retail Consortium’s (BRC) latest Payments Survey results estimated that the cost to retailers for accepting payments was £1.1 billion, out of which card payments accounted for £950 million. Furthermore, the data revealed that the card payments space is dominated by Visa and Mastercard, who control a 98% share of the market.

In recent months, an increasing number of retailers have been turning to card payments. Apart from offering added convenience and security, cashless transactions also allow retailers to comply with local health and safety regulations as a result of the ongoing coronavirus pandemic. 

However, this reliance on contactless payment solutions has put the two card giants in a position of unfair advantage, which they are now exploiting by increasing scheme fees. BRC data showed that the scheme fees charged to retailers, measured as a percentage of turnover, increased by 39% in 2017 and 56% in 2018, marking "clear demonstrations of an abuse of market dominance". 

Additionally, while the average cost of a cash transaction to retailers is only 1.42p, the price of a debit and credit card transaction are 5.88p and 18.4p, respectively. This amount, charged per transaction, makes a vast difference when retailers are already struggling to make ends meet amidst the challenging economic environment.

Often, it is smaller companies that face the brunt of these schemes, since they do not have the bargaining power to negotiate better payment terms with card providers. Complex billing structures and lengthy terms and conditions are also used to confuse and mislead retailers into paying more fees than agreed upon.

While retailers may shoulder the burden of fees up to a certain extent, ultimately, they would need to pass on some of the cost to customers. This could mean that consumers may end up paying higher prices for goods and services. The BRC estimates that if this added cost to retailers is passed on to consumers, it could result in a £40 increase in expenditure per household.

Finance policy head of the BRC, Andrew Cregan, criticised the two companies, saying, "If a phone or energy company increased their fees by such an amount there would uproar. It's an abuse of a dominant market position by these companies. They're two of the most profitable organisations in the world and they've got merchants over a barrel."

The industry body has called for an investigation by the Competition and Markets Authority (CMA) into the fee structures offered by these companies. The government is also exploring ways of protecting consumers’ access to cash to ensure that unbanked populations will continue to have a way of participating in the national economy.

Rhea Tibrewala
Rhea Tibrewala
Rhea has had over 5 years of experience in the finance sector, having worked as a digital marketing manager for leading financial institutions across multiple geographies. She is a tech fanatic, an avid reader, and enjoys travelling and music in her free time.
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