UK watchdog says Visa card fees anti-competitive
Industry News
By Steve Slater
LONDON, Oct 19 (Reuters) - Britain's consumer watchdog said on Wednesday the fees charged by the UK members of credit card company Visa infringe competition rules and lead to unduly high costs for retailers and consumers. The Office of Fair Trading (OFT) issued a statement of objections regarding the interchange fees -- the charge paid between two banks when a retail transaction is carried out by card -- charged by Visa members.
The statement represents the first formal objections against Visa and could pave the way for cuts to the fees earned by its members, which include most of Britain's major financial institutions. Visa has until early next year to respond.

Visa, which has 89 million cards in issue in the UK, said it was surprised by the OFT's comments, which seemed to clash with an agreement it reached three years ago with the European Commission to cut its interchange fee to 0.7 percent by the end of 2007. Colin Grannell, managing director of Visa UK, said the company was on track to achieve that target in Europe and Britain. "So for the OFT to say the rates are unduly high clearly is at odds with the Commission's position on how we calculate interchange," he told Reuters. "If the OFT artificially forces the interchange rates down then you have to cover your costs elsewhere and there will be potentially unintended consequences on service levels for cardholders or retailers."
A consumer group, Which?, had complained that retailers were passing the interchange fees onto consumers. The organisation welcomed the OFT's comments but said it was doubtful shoppers would benefit even if the fees were cut. "I would hope that the benefits would be passed on but it is doubtful. If retailers save 1 percent by not having to pay these fees will they pass the gain on?" said Mike Naylor, principal researcher at Which?.
The OFT began a preliminary probe into Visa members' fees in November. It was expected to find objections after the watchdog said last month that members of rival credit card firm MasterCard had infringed competition rules.
"The OFT believes that, like the MasterCard MIF (interchange fee) agreement, the Visa MIF agreement leads to an unduly high fee being paid to card issuing banks by merchant acquirers on every Visa transaction," the OFT said. "The cost of these fees is passed on to retailers and ultimately to consumers."
In September the OFT said MasterCard had infringed competition law but MasterCard rejected the ruling and said it would appeal. The watchdog has been investigating MasterCard since 2000, its longest probe ever.
Visa and MasterCard members are essentially all major British financial institutions, including leading credit card issuers Barclays and Royal Bank of Scotland.

Visa said 4.6 billion transactions were handled using its cards in the UK in the second quarter of this year, representing an average of 18 transactions per month with each card. Britain's credit card issuers have come under increased scrutiny in recent years amid uncertainty about fees charged and as consumers continue to put record amounts on their cards despite a slowdown in overall spending.
Credit card companies do not release their payment structures, but a 2000 government study found that interchange fees amounted to about 1.1 percent of the purchase price. MasterCard said its average fee had fallen below 1 percent. (Additional reporting by Carmel Crimmins)

Reuters 2005. All Rights Reserved.
Story Options

Copyright © 2000-2020 Kollect Systems
All trademarks and copyrights on this site are owned by their respective owners.