Card charge adds to shoppers' bills

Consumers are paying higher prices in shops because of the "unjustifiably high fees" charged by payment processor MasterCard, the Office of Fair Trading said today.

The OFT said the fees, which are charged by card issuers every time a customer pays for something by credit or debit card, were too high, and infringed the Competition Act.

Every time a transaction is made using a card, the retailer's bank has to pay an interchange fee to the card issuer. The bank then passes this fee on to the retailer, who passes it on to the consumer through higher prices.

In a report released today, the OFT said: "The cost of these fees is borne initially by the retailers' banks, but is passed on to retailers and, in turn, to consumers through higher retail prices. In effect, these fees act like a tax on retail transactions that is paid by all consumers in shops that accept credit cards."

The interchange fee is set by members of MasterCard, which includes most of the major banks. Individual card issuers are free to negotiate their own interchange fee with MasterCard, but in practice very few do, probably because they have no incentive to do so as the charge is not paid by them but charged to the retailer's bank.

MasterCard would not disclose what fee it currently charged, but according to the Cruickshank report, published in 2000, it averages 1.1% of the transaction value.
Given that around ?30bn was spent on MasterCard-branded cards during 2001, the sums at stake are very significant.

The OFT said it had reached the preliminary conclusion that the common fee infringed the Competition Act, and the level at which it was set was too high.

Commenting on today's preliminary conclusion by the OFT that MasterCard's fees infringe the Competition Act, Liberal Democrat shadow DTI secretary Vince Cable said: "The OFT's report suggests that Mastercard has exploited its dominant market position - forcing up retailers' costs, and ultimately hitting all consumers in the pocket.

"If true, this is yet another example of 'rip-off Britain', and the OFT must act to stop the abuse."

The OFT is giving MasterCard an opportunity either to justify its existing agreement or to change it so that it qualifies for an exemption under the Competitions Act. If MasterCard fails to do so by the spring, the OFT said it would force it to take action to stop infringing the act.