A court in the United Kingdom has ruled in favor of bringing down what it has termed excessively high fees that retailers must pay to banks to process card payments. The British Retail Consortium (BRC) claims the excessive interchange fees cost UK businesses as much as £1 billion a year.
This ruling provides further support for ongoing European movements that would set a cap for interchange fees across the EU.
“While this is great news, the UK risks falling behind other countries who have already chosen to act to reduce the anti-competitive costs of interchange fees at a domestic level,” Helen Dickinson, Director General at the BRC told Furniture News. “There is a real opportunity for the Government and Payment Systems Regulator to go further and faster by taking more immediate action in the UK so that British consumers benefit as quickly as possible.”
A Years-Long Campaign
For a decade, UK retailers have been campaigning for a more competitive payments system that would reduce the interchange fees they pay. In 2021, the BRC advocated for the elimination of card scheme interchange fees altogether for UK merchants that accept credit and debit cards. The 2023 edition of BRC’s annual payments survey found that 85% of retail spending occurs through credit or debit cards.
Last December, the UK’s Payment Systems Regulator (PSR) released a report documenting the excessive interchange fees and calling for a cap such as that approved by the court system. The PSR blamed a lack of effective competition in the payments market, which has been dominated by Mastercard and Visa.
Ripple Effects
Don Apgar, Director of the Merchant Payments Practice at Javelin Strategy & Research, warns that the ruling must take into effect all the players in the industry if it is to last.
“In the economics of free markets, the price of any item reaches equilibrium when it meets the needs of both buyers and sellers,” Apgar said. “Here, interchange fees must be low enough to create value in card acceptance for merchants, while at the same time high enough to incent banks and other issuers to issue credit and debit cards.”
Apgar sees ripple effects that may end up having unintended side effects for British retailers. “There is no question that merchants will benefits from the cost savings of lower card fees, but the bigger question now is how banks and card issuers will respond to a significant reduction in revenue from card programs,” he said. “If this revenue drop for banks and card results in reduced card features/benefits/rewards, less available credit, and possible additional card fees, this change could turn out to be a net negative for retailers over the long term.”