VISA credit card fees under scrutiny in UK

Despite EU acceptance of VISA’s fee structure in 2003, the UK competition authority has begun an action against the credit card company and its member banks for possible anti-competitive practices.

The interchange fee 

A credit card transaction typically involves four parties: the consumer, the retailer, the retailer’s bank (merchant acquirer) and the consumer’s bank (the card issuer). On processing any transaction, a fee is levied from the merchant acquirer to the card issuer, which is then passed on to the retailer, and ultimately the consumer. This fee is known as an interchange fee. It is set by the card issuers as a collective agreement between them and all the banks with whom they deal (hence the term multi-lateral interchange fee (MIF)).

It is not open to banks to negotiate individual fees with the credit card companies. 

The law

This setting of the fee constitutes an ‘agreement between undertakings’ and therefore falls within the remit of Article 81 of the EU Treaty. Such agreements, if they have ‘as their object or effect the prevention, restriction or distortion of competition’ are prohibited. Under the old Art 81 procedures, companies could notify the Commission of such agreements and the Commission had the power to exempt them from the Art 81 rules (this is what happened with Visa in 2003). The regime changed in May 2004 when the Modernisation Regulation came into force. Now, broadly, there is no notification procedure, companies must self-police (decide themselves whether or not their agreements breach the rules) and it is up, in the first instance, to national authorities to take action if they consider agreements are anti-competitive. The Commission retains its own powers to investigate and impose fines if necessary.

OFT action

The OFT was concerned that these fees were too high and that, because they were not separately negotiated and banks could not compete with each other on the fee, they were anti-competitive. 

On 19 October the Office of Fair trading decided that there is a prima facie case that Visa’s fees are anti-competitive and has issued a ‘statement of objections’. This requires Visa to answer OFT enquiries and give information. The OFT will then decide whether the UK Competition Act, which transposed Art 81 into UK law, has been broken.


In September 2005, the OFT found that a similar agreement between Mastercard and UK banks was in breach of the rules in that it had ‘adverse effects on competition’. The OFT held that the scheme stopped merchant acquirers from competing with each other and that, further, it included costs which were not directly related to the operation of the scheme (extraneous costs). Such costs should not be passed on to the consumer at all.

VISA UK’s managing director has replied to the OFT action by pointing to the Commission decision. Colin Gannell said: "Visa UK adopted the principles cleared by the European Commission to set interchange fees three years ago. A thorough investigation by the European Commission at that time concluded that Visa’s interchange system was the best way to operate a card payment system."

The Commission would not comment on what is a domestic investigation by the OFT. However, it would be open to the Commission to hold an EU-wide investigation, if, having considered the OFT evidence, it were sufficiently concerned about the issue.

The issue in question is the interchange fee charged between banks for handling credit card transactions.

Back in 2002, the European Commission looked at VISA’s interchange fees and decided, after some changes were made, to allow the system to stand. It decided to exempt the fee structure from rules which forbid agreements restricting competition under 
Article 81
of the Treaty.

Following changes to the EU competition rules in 2004, the primary onus for taking action under Art 81 shifted from the Commission to national authorities. The UK competition authority, the Office of Fair Trading (OFT), has now begun an action against the company, in relation to domestic fees. 

The question is one of law versus practicality. Legally, the interchange fee is a collective agreement, which stops banks competing with each other  and therefore restrictive of competition (see Issues below). But practically, it is difficult to envisage another workable system, given the number of banks involved. Concern, however - in the UK at least, clearly remains at the level of the fees. The OFT action involves UK fees only but if similar concerns were raised in other member states, there might well be pressure on the Commission to re-investigate the issue at EU level. 


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