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Sounding the alarm: the downsides of card dependency

Categories : Cash is efficient, Costs of cash versus costs of electronic payment instruments
June 19, 2018
Tags : Card payments, Cost of transactions, Costs of payments, Europe, United Kingdom
The opacity of growing scheme fees and the risks of a system failure should get people to start thinking about the costs of society's growing dependency on card schemes.
Viktoria Dijakovic

This post is also available in: Spanish

After Visa’s major crash on June 1st, which affected 5.2 million debit and credit card payments over a 10-hour period, there are now growing concerns over increasing costs linked to scheme fees.

Following a 2015 EU regulation that put a cap on interchange fees, the UK adopted reforms banning traders from charging customers a fee at checkout. Although the intentions of such reforms were fundamentally benign and designed with consumers in mind, they have backlashed causing fees to skyrocket and – more alarmingly – become more opaque. If fees per payment method were previously visible to customers, allowing them to choose the cheapest payment method according to the situation, these are now incorporated in the final cost and therefore far from transparent.

According to The Guardian, “Visa and MasterCard, which dominate the market, have simply increased scheme fees, in some cases by up to 100%”. Indeed, UK traders are now faced with £1 billion extra costs a year that are paid to Visa alone.

Today, Visa and MasterCard control over 60% of the card market in the UK and predictions hint at it reaching 90% by 2026. This is troublesome considering that unaware consumers are carrying the burden. Also, should the reach of the card market indeed reach the forecast, what would happen with another system failure like the one of June 1st?

The problem is that neither Visa nor MasterCard want to reveal their card scheme fees, simply stating that they aren’t profiting from the current situation. Both payments giants justify these fees as a necessity to maintain costly cyber-security systems and consumer protection measures, but retailers have had enough. In fact, they are starting raise their voices and asking the government to put growing fees to a halt.

Chief Economist Callum Godwin of the CMSPI payments consultancy states that “The latest increases have been targeted at those with a low average transaction value, such as local cafés and corner shops, hitting the weakest when the high street is already suffering”. He adds that both Visa and MasterCard are simply taking advantage of the situation as they know that today refusing their services can pretty much mean professional suicide. 

This post is also available in: Spanish