Visa and Mastercard pushed back against U.K. regulators examining 2021 cross-border fee hikes, saying the increases were triggered by the U.K.’s exit from the European Union and are justified by key services provided, such as fraud protection.

The questions from members of parliament come as the card companies face related scrutiny from that country’s industry overseer, the Payment Systems Regulator, according to a Treasury Select Committee of parliament asking for answers on the issue. 

“The Payment Systems Regulator (PSR) previously told the Committee 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,” according to a statement on the U.K. Parliament’s website. “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.’”

A EU interchange fee regulation that previously capped fees doesn’t apply now to cross-border fees following the U.K.’s 2020 Brexit move, the parliament statement said.

In recent letters, Visa and Mastercard, the No. 1 and 2 U.S. card companies, respectively, pushed back against questions from the Treasury Select Committee of the House of Commons, reminding the U.K. lawmakers of the role their services play in the country’s economy.

“For financial institutions, amongst other things, interchange supports their ability to issue cards and digital credentials that provide their customers with flexibility and choice in accessing a range of funds through debit, pre-paid and credit,” Visa said in its undated, six-page letter to the committee. The interchange fees also underpin “innovation in the FinTech sector, which currently employs more than 80,000 people in the UK alone.”

The U.S. card giants explained that the fees are justified by the fraud protection, convenience, dependability and innovation of the cards made possible by their network services. They also took credit for providing services that help level the competitive playing field between large companies and small ones.

In addition, the card companies stressed that they do not receive revenue from the fees, explaining that those fees are paid to banks as part of the transaction. Nonetheless, the card companies are paid by the banks for their services.  

Mastercard also contended in its response to the committee that cross-border fees are higher than for domestic transactions because they’re “more complex” and because they’re often related to situations where a physical card isn’t offered. 

“Cross border transactions across two different regions are significantly more complex than domestic transactions; carry more risk, require increased functionality, and as such carry a higher cost for the card issuer,” Mastercard said in its Aug. 2 letter to the committee.

Mastercard also pointed to competition driving rates higher. “The rates Mastercard offers must be comparable with its competitors, otherwise its cards will simply not be issued,” the company said in its statement.

The Paypers reported on the exchange between the U.K. lawmakers and the card companies earlier.

By Lynne Marek on Sep 7, 2022
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