Visa set to raise fees after removal of EU cap post-Brexit

Visa is to force through a series of post-Brexit fee increases which could place fresh pressure on consumers and small businesses struggling to deal with the financial impact of the coronavirus pandemic.

According to people briefed on the plans, Visa will in October raise its “interchange fees” — a levy it charges on behalf of banks for every debit or credit card payment that uses its network — on cross-border transactions between the UK and EU.

The payment processor also plans to increase so-called scheme fees on UK-EU transactions, as well as charge more for domestic payments using British company credit cards, added the people.

“With the move to cashless and ecommerce accelerating, it’s vital that small business and consumer sentiment isn’t stifled by rising card costs, just as we’re trying to bounce back from a severe recession,” said Craig Beaumont, chief of external affairs at the Federation of Small Businesses.

Although Brussels capped interchange fees for all transactions inside the EU in 2015, the UK’s departure on January 1 means the limit no longer applies to payments between Britain and the bloc.

The small guys just don’t have the resources to set up say a French entity or German entity. You need to have a meaningful presence, it can’t just be a PO Box.

From October, Visa will charge 1.5 per cent of the transaction value for credit card payments made online or over the phone between the UK and EU, and 1.15 per cent for debit card transactions, up from 0.3 per cent and 0.2 per cent respectively.

The post-Brexit fee increases are likely to hit more companies than a similar move announced by rival Mastercard in January, raising fears that UK consumers face higher prices for online purchases if companies pass on the rises.

Mastercard was widely criticised for applying the higher fees to transactions where a British card was used to buy from an EU-based seller. Visa’s changes will also apply to British companies selling to the EU, according to the people briefed on the plans. 

Sky News first reported that Visa would raise interchange fees on UK purchases from most of Europe.

The move comes just days after Visa pledged to delay several planned changes to interchange fees in its US home market to help businesses recover from the pandemic.

Peter Keenan, chief executive at Apexx Global, which provides payment services to ecommerce companies such as Asos, said it had already seen an increase in inquiries from businesses looking to set up new EU or British entities to avoid the increases in fees, but added the option would be too complex for smaller firms.

“The small guys just don’t have the resources to set up say a French entity or German entity,” said Keenan.

Visa and Mastercard have both stressed that they do not directly benefit from the higher interchange fees, which they said are used by card issuing banks to fund new products and fight fraud. 

But in regulatory filings, Visa acknowledged that “changes to [interchange] fees . . . . . . can substantially affect our overall payments volumes and revenues”, because higher fees encourage banking customers to use its networks.

The separate plan to increase scheme fees — which Visa charges businesses using its network for processing payments — will apply to transactions between the UK and the EU and take effect from July 2022. Visa does not publicly disclose precise levels of scheme fees, which it retains, but said they would remain “the smallest part” of the total amount of charges that businesses pay for card transactions.

Meanwhile, the rise in so-called commercial interchange fees — which include corporate credit cards — will come into force in April 2022 and will add to costs for companies especially in sectors like travel which rely on business spending and have been hit hard in the pandemic.

The commercial interchange fees are not capped by regulation, and a person close to Visa said the proposed increases were not in any way linked to Brexit.

The person added that Visa’s commercial interchange fees had historically been lower than Mastercard’s, and the change would bring it roughly in line with its rival.

Visa said: “As a network we remain focused on balancing the needs of all participants in the ecosystem who each benefit from the ability to use and accept digital payments. Visa continues to be one of the most cost-effective and secure ways to pay and be paid.”

A person close to Visa added that less than 5 per cent of consumer transactions at UK businesses would be affected by the change in cross-border fees.