Global: Visa and Mastercard Blame Fraud for Increased Cross-Border Fees

Visa and Mastercard have blamed fraud and growing competition for the increase in their cross-border fees since the U.K. left the European Union, a post on the parliament.uk website stated.

In October 2021, Visa and Mastercard increased cross-border interchange fees on purchases made by UK consumers to European businesses, and by European consumers to U.K. businesses. Fees increased from 0.2% to 1.15% for debit cards and 0.3% to 1.5% for credit card transactions. Previously, fees had been capped by EU regulation.

In June, the U.K.’s Payment Systems Regulator (PSR) detailed plans for two market reviews it focusing on card fees, including one that looks at cross-border interchange fees.

Following the PSR launching a probe into the issue, in July the Treasury Committee of the U.K. Parliament sent letters to Visa and Mastercard requesting them to explain their increases in cross-border fees.

In the responses of Visa and Mastercard, the two payment companies argued similar defenses.

Visa stated that it “does not earn revenue from interchange. Interchange ensures that there is a value transfer between the financial institutions who provide services to both consumers and merchants.”

The firm made the case that the rise in fees was “related to a subset of eCommerce transactions, where the merchant is based in the U.K. and the cardholder is in the EEA; or the merchant is based in the EEA and the cardholder is in the U.K. Ecommerce cross-border transactions have unique characteristics, including higher risk of fraud, and the need for greater vigilance and investment by issuers to ensure their security and efficiency.”

Likewise, in Mastercard’s letter, the company contested that “interchange is a small fee typically paid by acquirers (the merchant/retailer’s bank) to issuers (cardholder’s bank), to recognize the value delivered to retailers, governments, and consumers by accepting digital card payments and the costs incurred by such payments. It is not levied on consumers or paid to the card schemes.”

Mastercard also highlighted the risk of fraud as a key factor contributing to higher fees.

It stated that “cross border interchange rates are higher than domestic interchange rates in part because of the value that merchants receive from being able to conduct secure cross border transactions, but also the increased functionality required and greater risks (e.g. fraud).”

Commenting on the responses, Rt. Hon. Mel Stride MP, Chair of the Treasury Committee, said:

“All businesses, particularly small and medium-sized firms, are facing rising costs on many fronts, and the increase in cross-border card fees will only add to these pressures. It is vital that these businesses have every opportunity to succeed and are not burdened with disproportionate additional costs at this time.”