Saturday, October 22, 2005

Visa in dock over card usage fee (BBC News)

Credit card firm Visa is to be the subject of an in-depth inquiry by the Office of Fair Trading (OFT) into the fees it charges to retailers.

The OFT says that interchange fees - the fee charged between banks for processing a card transaction - are too high.

The fees, it said, meant that consumers ultimately paid more for goods.
Last month, the OFT said the fees charged by Mastercard and the major banks amounted to a tax on consumers.

Unduly high

The cost of these fees is passed on to retailers and ultimately to consumers OFT statement . The OFT has been examining Visa's interchange fee since last November. The OFT has issued a so-called statement of objections regarding Visa, which has 89 million cards in the UK, as a prelude to launching a full investigation.

In the statement, the OFT said it believed the collective agreement between Visa and its member banks on the interchange fee in the UK restricted competition and infringed rules. "The Visa MIF agreement [interchange fee] leads to an unduly high fee being paid to card-issuing banks by merchant acquirers on every Visa transaction," the OFT statement said.

"The cost of these fees is passed on to retailers and ultimately to consumers," it added.
In response, Colin Grannell, managing director of Visa, said he was "disappointed" at the OFT statement. He added that they had agreed the way it calculated its interchange fee with the European Commission.

Visa now has an opportunity to defend its fee structure.

In the end, the OFT could order Visa to reduce the fee and even fine the card issuer.

In September, the OFT found that Mastercard's interchange fee had been deliberately set too high so that banks could recover some extra costs, such as those of offering standard interest-free periods.

The scale of the overcharging was highlighted by the fact that in the year 2004 alone, UK Mastercard users spent £43bn in 700 million separate transactions.

The interchange fee paid to the banks by the retailers averaged around 0.9%, or £400m.
But Mastercard has since changed its charging structure.

[Source: BBC News]