MasterCard raises fees on purchases for UK-issued cardholders

MasterCard will raise its fees for holders of UK-issued credit cards from 0.3% to 1.5%, a 400% rise.

The departure of the single market means new realities for the British consumer. MasterCard will increase fees it charges merchants when cardholders from the United Kingdom buy goods and services from companies based in the EU.

The increased cost is one of the new realities that mark the post-Brexit world. Card fees are no longer subject to the EU waiver on transaction fees for cross-channel members. The new changes will immediately have an impact on car rentals, airlines, hotels, holiday firms - you name it. 

Several companies raised alarm over their reliance on online payments including concerns over high consumer prices. 

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New changes

The new changes will affect “interchange” fees set on the behest of big banks - allowing MasterCard holders to use these payment networks. Charges on credit cards will rise fivefold from 0.3 to 1.5 percent of its purchase value. The debit card fees will rise to 1.15% from 0.2%. MasterCard handles the bulk of credit card transactions across the UK and a significant share of debit card transactions as well. Visa leads in the debit card market and is yet to announce any changes to its fees. In a response statement, Visa assured its customers that they will communicate any change where appropriate and give 6-month prior notice for people to plan ahead. 

According to ft.com the new changes are more likely to benefit banks and card providers rather than MasterCard. 

MasterCard pointed out the changes are designed to bring about interchange rates similar to that required of transactions with the European Commission on all non-EU areas in 2019. Payment for most items bought on Amazon from the UK passes through the Luxemburg headquarters. Given the changes hardly kick in till several months have elapsed, international companies will look for ways of reclassifying sales from the UK in order to evade charges. 

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Kevin Hollinrake, MP and chair of the party parliamentary group on Fair Business Banking described the new charges as “opportunism.” He further called on regulators to come in and rein in financial institutions that are looking at Brexit as a way of “hiking up costs.”

Impact of the move

The EU introduced this cap in 2015 due to concerns of prices shooting up for consumers. Hidden fees and charges were resulting in hundreds of millions in costs for companies and higher prices for consumers. 

Some argue that these developments had been anticipated for two years. According to the UK Finance: Card Spending Update, people spend £3 billion monthly on UK credit cards when overseas. 

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It is worth noting that MasterCard has not invented a new fee schedule for the UK, they simply applied their existing EEA inbound cross-border fee, last updated in 2019, and applies to all non-EEA countries. 

Businesses have to adjust to the new post-Brexit changes, particularly the red tape when buying and selling goods in the UK and EU not forgetting the customs and VAT charges. The pandemic has resulted in a mushrooming of e-commerce startups and subscription-based businesses attempting to survive the market, and any price increases work against their chances of survival.