Mastercard’s Europe head defends card fees amid UK regulatory probe

Mastercard’s European president has defended the fees it charges merchants as the card network and rival Visa face regulatory probes in the UK, dissent from retailers and threats from Big Tech’s attempt to muscle in on their territory.

“We believe interchange [fees paid to banks for payments on their network] is the right mechanism for everybody, sharing the costs and benefits of the payment system,” Mark Barnett, Mastercard’s president for Europe, told the Financial Times. “We think it represents incredibly good value.”

The UK’s Payment Systems Regulator is reviewing cross-border interchange fees, levied by card networks on behalf of banks for every debit or credit card payment that uses its network. Together, Mastercard and Visa account for 99 per cent of these payments in the UK in 2021.

EU regulation introduced in 2015 capped interchange fees at 0.2 per cent of the transaction value for debit cards and 0.3 per cent for credit card.

But following the Brexit transition period, both networks raised the interchange fees for online payments between the EU and the UK to 1.15 per cent for debit card transactions and 1.5 per cent on credit cards, citing fraud and growing competition.

“We think they represent incredibly good value,” said Barnett, adding that the caps put in place in Europe in 2015 had helped to double the number of merchants who accepted Mastercard to 100mn over the past eight years by lowering the costs.

The PSR is also studying scheme fees, the charges that go directly to the card networks rather than to the banks.

Barnett said Mastercard was fully co-operating with both investigations and had provided large amounts of data to the PSR.

He said the scheme fees paid to Mastercard were “minuscule”. Based on a 2021 report from Boston Consulting Group, Mastercard estimates that scheme fees across Europe were equivalent to 6p on a £50 transaction, although it said the cost would now be lower since the card network withdrew from Russia.

The card networks are also under pressure from merchants to reduce costs. Trade bodies including the British Retail Consortium and the Federation of Small Businesses launched campaign group Axe the Card Tax last year, calling for the PSR to reduce card fees.

In November 2021, Amazon said it would stop accepting UK-issued Visa credit cards as a “result of high costs”, with a person familiar with Amazon’s position citing interchange fees as one of the sticking points.

Amazon reversed course January last year, saying in a statement that it was working with Visa on a solution.

The battle came as the relationship between Big Tech companies and payment firms has become increasingly complex, with the west coast giants expanding their reach into financial services.

Apple launched a pilot of its buy now, pay later service in the US in March, using Mastercard’s network, while Amazon offers an instalments payments service through Barclays in the UK.

“We’re playing with all the Big Tech players as we do with traditional banking partners as we do with fintechs,” said Barnett. “We’re not going to be picky about who we do business with as long as they meet the standards of our franchise.”

Barnett also said the nature of central bank digital currencies under development by the European Central Bank, Bank of England and other authorities remained unclear.

This new digital form of central bank money is likely to play a similar role to cash, but many of the specific functions are yet to be clarified.

“We understand the sovereignty desire of central banks but there’s still lots of questions about the use case. What’s the business model? How is it distributed? What does it do for banks’ balance sheets?”

The adoption of a CBDC was unlikely to replace cards and other payment methods, he said.

The UK Treasury has suggested it would limit the amount that could be held to avoid the risk of users removing their money from commercial banks.

“In general we’re open for competition,” he said. “The CBDC might compete a little bit but given what we’re talking about in terms of holdings and use cases, I don’t think it’s a huge deal.”