Case Studies

Credit card ‘interchange’ fees

Following a request from Mastercard for an OFT ruling on the validity of its arrangements with banks and retailers, Vincent was the senior Director overseeing the investigation into whether the charges under those agreements restricted competition. The ‘interchange’ fee is the amount paid by retailers (and, ultimately, consumers) to the members of the Mastercard system (the banks and others who issue Mastercards) each time a consumer uses a card in their outlet, to cover the cost of running the payment system.
The OFT was concerned that the system rules allowed the members to charge fees which were not properly cost related – thus breaking the law prohibiting restrictive agreements. The retailers also did not commonly pass on to card users the fee they were charged by Mastercard but instead charged the same price to all consumers: those who (for example) paid by cash may have been subsidising the users of cards and hence ultimately the bank members of the system. The case was effectively taken up by the European Commission (appeals are ongoing), but these fees to retailers have fallen substantially in the UK in the period since the start of the investigation, often by as much as a third: a substantial value when over £2 billion in fees may be earned annually by all card systems in the UK.