To quote the FCA, "It is first and foremost a firm's responsibility to treat customers fairly." At
best, Mastercard could justify its recent 400% increase in interchange fees that EU firms face for
online payments from UK shoppers as aligning with the fees paid by all other non-EU shoppers.
However, countless small businesses will now face increased fees to banks to provide payments
whilst a global crisis grips the world. It is hard to argue that the timing of this or any alignment
with actual cost increases are within the spirit of treating customers fairly.
Many businesses will have to absorb these costs themselves or pass them onto the end consumer.
The latter option being highly likely. Mastercard is also quick to point out that the winners are
the banks who will receive the increased fees.
Whilst this could provide a welcome income boost to all banks, especially neo banks grappling
with profitability, is the spirit of fair value undermined? Although likely, Mastercard will now
find it easier to increase its penetration into some of these businesses.
Mastercard would argue that the new fee structures deliver price harmonisation by aligning
with other non-EU fees and are therefore fair. Conveniently these fees are also higher and rising
thereby enabling price optimisation and greater revenue levels to be extracted.
Is this approach simply a textbook example of old-world price management in the financial
services sector? In the cat and mouse game with fair value regulation, Mastercard would argue
it is acting in a way that meets the rules.
An EU Commission study published in 2020 evaluated the effects of introducing a cap on
interchange fees. It concluded that the approach taken had reduced prices for card-based
payments and lowered merchants' costs of accepting card payments.
The review also highlighted that this had led to higher acceptance of card payments and
is in the long-run expected to lead to lower consumer prices. The introduction of a cap on
interchange fees for consumer card payment transactions delivered the desired fair value
outcomes and spirit the commission set out to achieve.
However, the recent move by Mastercard now looks likely to reverse these protections and
benefits for EU firms taking payments from UK shoppers.
The move also looks to be a missed opportunity to build on the positive benefits the EU
Commission fee cap has delivered by lowering all non-EU fees to match the EU caps. Why
not reduce interchange fees for all non-EU shoppers, including UK consumers and adopt this
The EU evaluation exercise evidenced multiple benefits for businesses, costs, and consumers
from lowering fees. This approach would indeed bring to life the principles of fair value but would
require leadership and a vision for the future that is different from the past. Perhaps, in the cat and mouse game with fair value regulation, the next move may come from the regulator to respond to these dramatic fee changes. The only sure thing is that this game is
far from over.