Mastercard’s European chief, Mark Barnett, has justified the charges levied on merchants amidst regulatory scrutiny in the UK, retailer opposition, and the looming threat of Big Tech encroaching on their sphere.
Barnett, in a conversation with the Financial Times, stated that they believe interchange fees (fees paid to banks for payments on their network) are fair, spreading the costs and benefits of the payment system evenly. He insisted these charges offer excellent value.
The UK’s Payment Systems Regulator is currently examining cross-border interchange fees. These fees are imposed by card networks on behalf of banks for each debit or credit card payment utilizing its network. In 2021, Mastercard and Visa accounted for 99% of these payments in the UK.
EU legislation from 2015 limited interchange fees to 0.2% of the transaction value for debit cards and 0.3% for credit cards. However, post-Brexit, both networks raised the interchange fees for online payments between the EU and the UK to 1.15% for debit card transactions and 1.5% for credit cards, citing fraud and rising competition.
Barnett emphasized that the caps implemented in Europe in 2015 have doubled the number of merchants accepting Mastercard to 100 million over the past eight years by reducing costs.
The PSR is also investigating scheme fees, which are payments made directly to card networks instead of banks. Barnett confirmed Mastercard’s full cooperation with both investigations, providing ample data to the PSR.
According to a 2021 Boston Consulting Group report, Mastercard asserts that scheme fees across Europe amounted to just 6p on a £50 transaction. It claims that the cost is now even lower since the card network pulled out of Russia.
Card networks are also being pressured by merchants to cut costs. Trade organizations including the British Retail Consortium and the Federation of Small Businesses established the Axe the Card Tax campaign group last year, urging the PSR to reduce card fees.
In late 2021, Amazon announced that it would no longer accept UK-issued Visa credit cards due to high costs, specifically citing interchange fees as a major concern. However, Amazon reversed its decision in early 2022, stating it was collaborating with Visa on a solution.
This confrontation occurs amid a complex and evolving relationship between Big Tech firms and payment companies, with tech titans expanding their influence into financial services.
Apple began a trial of its buy now, pay later service in the US in March, utilizing Mastercard’s network, while Amazon offers a payment instalment service through Barclays in the UK.
Barnett stated that Mastercard is open to doing business with all Big Tech companies, traditional banking partners, and fintechs, as long as they meet the standards of their franchise.
He also commented that the specifics of central bank digital currencies, currently under development by the European Central Bank, Bank of England, and other authorities, are still uncertain.
The emerging digital form of central bank money is anticipated to operate similarly to physical cash, yet its specific roles are still under discussion.
“We acknowledge the autonomy that central banks desire, but numerous questions surrounding its practical use remain. What is the business model? How will it be distributed? What effects will it have on banks’ balance sheets?”
The implementation of a Central Bank Digital Currency (CBDC) is not expected to eliminate cards and other payment methods, he added.
The UK Treasury has proposed a cap on the amount that can be held in CBDC to prevent users from withdrawing all their funds from commercial banks.
“We generally welcome competition,” he stated. “The CBDC may introduce some competition, but considering the limitations on holdings and its intended uses, I don’t think it’s a significant concern.”
