Mastercard’s European chairman has defended the fees it charges merchants as the card network and rival Visa face regulatory investigations in the UK, dissent from retailers and threats from Big Tech’s bid to impose themselves on their territory.
“We believe that the exchange [fees paid to banks for payments on their network] is the right mechanism for everyone, sharing the costs and benefits of the payment system”, Mark Barnett, MasterCard president for Europe, told the Financial Times. “We think this represents incredibly good value.”
The United Kingdom Payment systems regulator reviews cross-border interchange fees, collected by card networks on behalf of banks for each debit or credit card payment that uses its network. Together, Mastercard and Visa account for 99% of such payments in the UK in 2021.
EU regulations introduced in 2015 capped interchange fees at 0.2% of the transaction value for debit cards and 0.3% for credit cards.
But after the Brexit transition period, the two networks increased 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 growing competition.
“We think they represent incredibly good value,” Barnett said, adding that the caps put in place in Europe in 2015 helped double the number of merchants who accepted Mastercard to 100 million in the past eight years. reducing costs.
PSR is also looking at scheme fees, fees that go directly to card networks rather than banks.
Barnett said Mastercard was cooperating fully with both investigations and provided large amounts of data to PSR.
He said the plan fees paid to Mastercard were “tiny”. Based on a 2021 report from the Boston Consulting Group, Mastercard estimates the scheme fee across Europe was equivalent to 6p on a £50 transaction, although it said the cost will now be lower since then. the withdrawal of the card network from Russia.
Card networks are also under pressure from merchants to cut costs. Trade bodies including the British Retail Consortium and the Federation of Small Businesses launched the campaign group Ax the Card Tax last year, calling on PSR to reduce card fees.
In November 2021, Amazon said it would stop accepting UK-issued Visa credit cards due to the “high cost outcome”, with one person familiar with Amazon’s position citing interchange fees. as one of the sticking points.
Amazon backtracked in January last year, saying in a statement it was working with Visa on a solution.
The battle has come as the relationship between Big Tech companies and payments companies has become increasingly complex, with the West Coast giants expanding their reach into financial services.
Apple released a sound driver buy now, pay later in the US in March, using Mastercard’s network, while Amazon offers an installment payment service through Barclays in the UK.
“We’re playing with all Big Tech players like we do with traditional banking partners like we do with fintechs,” Barnett said. “We’re not going to be picky about who we do business with as long as they meet our franchise standards.”
Barnett also said the nature of central bank digital currencies being developed by the European Central Bank, the Bank of England and other authorities remains unclear.
This new digital form of central bank money is likely to play a similar role to cash, but many specific functions have yet to be clarified.
“We understand central banks’ desire for sovereignty but there are still many questions about the use case. What is the business model? How is it distributed? What does it do for banks’ balance sheets? ?”
Adoption of a CBDC is unlikely to replace cards and other payment methods, he said.
The UK Treasury has suggested limiting the amount that could be held to avoid the risk of users withdrawing their money from commercial banks.
“In general, we are open to competition,” he said. “The CBDC might be a bit of a competition, but given what we’re talking about in terms of funds and use cases, I don’t think that’s a big deal.”
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