Fraud The Culprit For Higher Interchange Fees, Say Mastercard And Visa

August 25, 2022
The international card schemes have responded to the UK Treasury Select Committee’s investigation into recent increases in card transaction fees.

The international card schemes have responded to the UK Treasury Select Committee’s investigation into recent increases in card transaction fees.

Both companies have told a cross-party committee of UK parliamentarians that higher fees are justified by the greater risk of fraud in cross-border transactions and the costs incurred by banks to prevent and detect such crime.

“E-commerce cross-border transactions have unique characteristics, including a higher risk of fraud, and the need for greater vigilance and investment by issuers to ensure their security and efficiency,” said Visa.

Kelly Devine, Mastercard’s divisional president, said that cross-border interchange rates are higher than domestic interchange rates in part because of the value that merchants receive from being able to conduct secure cross-border transactions, as well as the increased functionality required and greater risks such as fraud to all parties that are associated with conducting cross-border, card-not-present transactions.

The card scheme further justified fee increases by stating that in the UK in 2019, although cross-border transactions only accounted for 11.8 percent of the value of all transactions, it accounted for 53.5 percent of the value of all fraud.

This, according to Mastercard, demonstrates how heavily fraud is driven by cross-border transactions compared with domestic transactions.

In addition, Devine said that interchange equates to a very small fee for merchants compared with the value that merchants receive from both domestic and overseas card transactions, the wider indirect and back-office costs that merchants incur to accept card payments and the cost of acceptance of other forms of payment, such as cash and buy now, pay later (BNPL).

Visa and Mastercard have also pointed out that they do not benefit directly from fee increases, as it is a customer’s card issuer, rather than the card payment system, which receives the additional revenue from interchange fees.

Mastercard and Visa were responding to a letter from the chair and Conservative MP Mel Stride, who appeared relatively unimpressed in his response.

“All businesses, particularly small and medium-sized firms, are facing rising costs on many fronts, and the increase in cross-border card fees will only add to these pressures,” said Stride. “It is vital that these businesses have every opportunity to succeed and are not burdened with disproportionate additional costs at this time.”

The card schemes’ statements come in response to the Treasury Committee’s concerns about the impact of cross-border fee increases for businesses in the UK since its departure from the European Economic Area.

Mastercard and Visa are also facing questions from the UK’s Payment Systems Regulator (PSR) on this issue, with the regulator investigating cross-border interchange as part of its card fees review.

The PSR has previously told the Treasury Select Committee that it has not seen “evidence that shows that there have been significant changes in the costs” for card issuers that could justify the increase in fees.

The PSR also recently expressed concerns that these fee rises may demonstrate the market is “not working well” and “could result in higher prices paid by UK merchants and consumers”.

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