OFT says MasterCard overcharges retailers

OFT says MasterCard overcharges retailers

Retailers and their customers face unduly high fees when using MasterCards, the Office of Fair Trading said yesterday in its latest provisional findings into the way card charges are set.

The OFT, which has been examining MasterCard for four years, also revealed it was investigating the fees charged by Visa. The competition body said it had reasonable grounds to suspect that the agreement between Visa and its issuing members "prevents, restricts and/or distorts" competition.

The British Retail Consortium argues that the fees retailers pay to banks and other financial firms when accepting credit cards issued by them are increasing prices to consumers.

"It probably affects the average household by putting a good few pounds on the average shopping basket over the year," a BRC spokesman said.

Advertisement starts

---

---

Advertisement ends

He cited work by Don Cruickshank, who investigated the banking industry four years ago, showing that credit card companies were overcharging by between £500m and £1bn a year.

The OFT refused to quantify the extent of any overcharging, but it is widely believed that the interchange fee - paid to to the banks which issue the credit cards to cover things such as fraud - is about 1.1% of the value of a transaction on the card.

Overall credit card spending reached £120bn last year, up from £30bn 10 years ago.

In its proposed findings, the OFT argues that the arrangement between the members of MasterCard on transactions in Britain by UK-issued MasterCards infringed competition rules. "The OFT believes that the agreement leads to an unduly high fee being paid to card-issuing banks on every such transaction. The cost of these fees is passed to retailers and ultimately to consumers."

The OFT warned MasterCard of its findings in February but has updated its investigation and given it another chance to respond before a final decision - possibly next summer. MasterCard said it would be submitting its response to the OFT in the coming months. It argues that the average interchange fee is less than 1% and has fallen steadily for the last 10 years.

Visa insisted that it felt the OFT would find it was not infringing competition rules. Visa's interchange fee is 0.7% and has been approved by the European competition authorities after an investigation in 2002.

Guardian Unlimited © Guardian Newspapers Limited 2004