Matthew Harrod – Payments Company Founder, writes for Payment Expert on the news that Mastercard has increased prices for UK transactions in the European Union, what it means UK payments and whether this is the start of a host of changes.
So, an increase in charges on MasterCard card processing was announced on Monday to yells of opportunism from the media teamed with the usual social media backlash. Understanding the interchange landscape shows this shouldn’t have come as a surprise but could possibly be the starting gun for further change.
If we go back to 2015, the European Parliament voted to cap consumer credit interchange at 0.30% and consumer debit fees as 0.20%. This was then imposed on Visa and MasterCard with American Express escaping the regulation change. This change benefited businesses across the 28 states both domestically and cross border.
Obviously, this was not well received by the card schemes and issuers but the UK was effectively put into a protective environment where these fees could not be exceeded for the majority of consumer cards (premium and business cards escaped the regulation at the time).
Fast forward to the announcement yesterday. The change, as opposed to being blatant opportunism was just MasterCard removing the UK from the EEA region to fall in line with other countries as a non-EEA member. It’s a simple case of changing the interchange tables to “honour the will of 52% of the British people” and was more housekeeping than pre-mediated opportunism.
The big question now is while this covers cross border transactions for EEA merchants selling into the UK (Amazon being the obvious example with a Luxembourg base) what will happen with other classifications?
• What will happen with transactions of UK merchants selling into Europe?
• Will domestic rates now increase in line with countries like Switzerland (50-100% increase) or further?
• Will Visa announce a similar reclassification of the UK in terms of interchange region?
It’s still early days and the initial thoughts from talking to others in the payments sector are that we expect to increase in all of the above scenarios at some point over the next few months as the card schemes look to increase these fees and revenues that were reduced by the 2015 cap.
Not all doom and gloom
There may be some good news for the UK domestically though. Prior to the cap, debit charges were priced on a pence per transaction basis ranging from secure at around 8p and non-secure at 0.18p. This fixed fee pricing methodology is also used in Switzerland which doesn’t fall under the EEA caps
Debit card usage in the UK cards market equates to approximately 80% of transactions. Replicating this pricing model would be a definite boost for higher value Visa transaction
processing merchants who are turning to bank transfer solutions and will make the trusty debit card much more cost-effective.
The downside of course is that lower value transactions in an increasingly subscription-based environment would become more costly.
The next few months should see more news filtering through on the changes while the card schemes balance revenue against public perception and government pressure to fees low so as to avoid more bad political publicity in the aftermath of a Brexit agreement where we are only starting to see the challenges in the financial services sector.
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