UK retailers and fintechs lock horns with US card giants over rising payment fees

By Luke Kosky, Fintech Policy Lead at the Coalition for a Digital Economy

The UK Government is facing growing pressure from disaffected British businesses and fintech providers to take action on rising fees charged by Visa and Mastercard on card transactions.

Cards are the dominant payment technology in the UK. According to the latest data from the British Retail Consortium, 90% of all retail transactions now take place on card.

That market is dominated by Visa and Mastercard, who charge a scheme and processing fee on every card transaction. Those fees have been rising, and a campaign group has formed and written to the Government to call for action on those rises.

The Axe the Card Tax campaign represents more than 240,000 businesses, and is formed of trade bodies including the British Retail Consortium, Federation of Small Businesses, Federation of Independent Retailers, Association of Convenience Stores and more.

They estimate that the scheme and processing fees charged by the card giants have risen by as much as 600% in the space of nine years. That means that the US card giants are likely to make nearly £2bn from scheme and processing fees taken on UK payments in the year ahead alone. Without action, this figure is only likely to increase.

The Campaign is calling on the Payments System Regulator and Treasury to undertake several key measures to begin the process of rebalancing the UK payments market. These include:

• The PSR to freeze all payment fees with immediate effect until an investigation of the sector is complete
• A treasury review into the cost of accepting card payments in the UK, and subsequently regulatory changes to give alternative providers a better chance of success
• An immediate reversal of the 400% increase in cross-border transactions between the UK and EU, which is costing businesses upwards of £36m a year, according to BRC data

The campaign comes at a time when economic uncertainty is ravaging the UK. Energy costs have already forced some businesses to close, while inflation continues to see prices rise for consumers.

Luke Kosky is the Head of Fintech policy at the Coalition for a Digital Economy, who are backing the Axe the Card Tax campaign. He commented:

‘Giving the UK’s fintech sector a boost can make payments more efficient and less costly for the hundreds of thousands of businesses who use payment technology every day.

Alternative providers launched here in the UK offer increased transparency, lower or scrapped transaction fees and faster and easier payment services. Rather than exploiting small businesses, they support them.’

Hiroki Takeuchi is co-founder and CEO of alternative payments provider GoCardless. He said: ‘As merchants continue to recognise the true cost of accepting card payments, from the sting of rising fees to measures like Strong Customer Authentication denting conversion, they will search for other payment methods that are faster, safer and more cost-effective.’

Responding to previous media coverage of the campaign, Mastercard argued its fee for transactions ‘offers UK retailers one of the lowest cost and safest ways to accept a payment’.

Attention will now turn to the Spring Budget, which will give an indication as to Government appetite for regulatory change. Kosky said:

‘This Government is looking for issues it can win on. Axing the Card Tax has the dual benefit of reinvigorating the UK fintech sector and putting money into the pockets of small businesses. It should be a no-brainer.’