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    From todays Independant Newspaper in the UK - No wonder the Retailers might want an alternative...

    "MasterCard charges are a tax on UK consumers, says OFT
    By David Prosser, Personal Finance Editor
    Published: 07 September 2005

    The Office of Fair Trading ruled yesterday that MasterCard had breached competition laws by overcharging retailers for processing credit-card transactions.

    The regulator said the credit-card group's system of "interchange fees" left little incentive for individual banks to negotiate cheaper deals with retail customers.

    The OFT is taking no immediate action against MasterCard because the group changed the way it set its fees last November.

    Last night, the OFT said that while it had concerns about MasterCard's new arrangements, it had not begun an investigation into the details. Its initial inquiry took five and a half years to complete.

    The dispute centres on the complicated way in which consumers pay for credit-card transactions. Each time a retailer sells goods or services to a credit-card customer, it sends the details to its own bank. This bank then contacts the credit-card issuer, which hands over the cash, minus a handling charge. This interchange fee is then passed on to retailers by their own banks.

    Under a collective agreement between MasterCard members, the interchange fee is about 1 per cent of each transaction. The group processes £33bn of sales each year, so retailers - and their customers - pay about £330m in interchange charges. "This unduly high fee was like a tax on UK consumers," Sir John Vickers, the chairman of the OFT, said. The regulator ruled the fee was anti-competitive because it was set at a unified level.

    Although card issuers are entitled to negotiate discounts, most do not do so because the fee is not paid by them but charged to retailers' banks. John Bushby, the general manager of MasterCard Northern Europe, said the regulator had misunderstood the system. "We disagree that default interchange fees represent a tax on consumers - every cost that a retailer has could likewise be called a tax."

    MasterCard has consistently argued that if the group was forced to lower interchange fees, credit-card issuers would make up the difference by raising interest rates or cutting back on benefits such as loyalty schemes.

    The OFT said it would begin investigating the system introduced by MasterCard. The credit-card group, rather than its member banks, now sets the interchange fee level, although this change is not likely to prevent a similar ruling in the future.

    The regulator also has an ongoing investigation into a similar system of interchange fees at Visa, MasterCard's main rival. The OFT said the law would be applied "in a consistent manner".

    A spokesman for the British Retail Consortium welcomed the OFT ruling, but said the need for a second investigation was frustrating. "This lack of transparency suggests that the procedure is pretty flawed," he said. "BRC members have seen no resulting benefit to themselves or their customers following this action."

    The Office of Fair Trading ruled yesterday that MasterCard had breached competition laws by overcharging retailers for processing credit-card transactions.

    The regulator said the credit-card group's system of "interchange fees" left little incentive for individual banks to negotiate cheaper deals with retail customers.

    The OFT is taking no immediate action against MasterCard because the group changed the way it set its fees last November.

    Last night, the OFT said that while it had concerns about MasterCard's new arrangements, it had not begun an investigation into the details. Its initial inquiry took five and a half years to complete.

    The dispute centres on the complicated way in which consumers pay for credit-card transactions. Each time a retailer sells goods or services to a credit-card customer, it sends the details to its own bank. This bank then contacts the credit-card issuer, which hands over the cash, minus a handling charge. This interchange fee is then passed on to retailers by their own banks.

    Under a collective agreement between MasterCard members, the interchange fee is about 1 per cent of each transaction. The group processes £33bn of sales each year, so retailers - and their customers - pay about £330m in interchange charges. "This unduly high fee was like a tax on UK consumers," Sir John Vickers, the chairman of the OFT, said. The regulator ruled the fee was anti-competitive because it was set at a unified level.
    Although card issuers are entitled to negotiate discounts, most do not do so because the fee is not paid by them but charged to retailers' banks. John Bushby, the general manager of MasterCard Northern Europe, said the regulator had misunderstood the system. "We disagree that default interchange fees represent a tax on consumers - every cost that a retailer has could likewise be called a tax."

    MasterCard has consistently argued that if the group was forced to lower interchange fees, credit-card issuers would make up the difference by raising interest rates or cutting back on benefits such as loyalty schemes.

    The OFT said it would begin investigating the system introduced by MasterCard. The credit-card group, rather than its member banks, now sets the interchange fee level, although this change is not likely to prevent a similar ruling in the future.

    The regulator also has an ongoing investigation into a similar system of interchange fees at Visa, MasterCard's main rival. The OFT said the law would be applied "in a consistent manner".

    A spokesman for the British Retail Consortium welcomed the OFT ruling, but said the need for a second investigation was frustrating. "This lack of transparency suggests that the procedure is pretty flawed," he said. "BRC members have seen no resulting benefit to themselves or their customers following this action."
 
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