The Government is being urged to cut hidden credit and debit card costs which are said to be “strangling” UK retailers, following a European court ruling against MasterCard today.
EU judges upheld a European Commission decision banning MasterCard's "multilateral interchange fees" system - a charge on retailers for every card payment transaction they handle.
The Luxembourg court threw out MasterCard's appeal against the decision, confirming the Commission's claim that the way the system operates is a breach of EU competition rules.
The decision only applies to cross border credit and debit card payments in Europe, but the UK's Office of Fair trading has been investigating such fees on domestic card transactions and the British Retail Consortium said it should now act.
BRC director general Stephen Robertson said: "I applaud the European Court for holding firm on its decision to end this unjustifiable tax on customers. This is an historic and highly significant decision on card charges for transactions between European nations but what comes next is crucial - and that should be fairer costs for customers and retailers whenever they pay by card."
He went on: "People deserve the same treatment on card charges when buying within the UK. Hundreds of millions of pounds are at stake. The Office of fair Trading should follow this landmark European ruling with rapid action here."
CMS Payments Intelligence, a London-based specialist payments consultancy, said it expected UK Government action soon to bring down charges. "Hidden credit and debit card payments are strangling UK retailers and pushing up prices for customers," said company CEO Brendan Doyle.
Mr Doyle, CEO of CMS Payments Intelligence, a specialist advisory firm which is working with UK retailers to have interchange fees reduced.
Mr Doyle, who is handing a request for regulation to Chancellor George Osborne next week on behalf of more than 20 major UK retailers, went on: "The EU Court is the knight in shining armour for retailers and ultimately their customers too. The hidden and complex fees retailers face for accepting credit and debit cards have been ratcheted-up unfairly and consistently over a long period, and MasterCard has now lost its appeal to resist regulation of its powerful market position.
"While this ruling only applies to cross-border payments in Europe, for instance when tourists and business people use their cards within Europe, the principles set are much broader and it will open the door to greater regulation of hidden interchange fees domestically in the UK and Europe.
"We expect Government regulation to happen soon now the judgment has been given. On the basis of this ruling, the regulation of these hidden costs on accepting credit and debit cards will lead to savings of up to £700 million per year for British retailers. Given the very thin operating margins and the high insolvency rate of shops, this is very good news for retailers. The ruling is also good news for shoppers since these fees get passed on as higher costs, increasing the prices paid by all customers."
But MasterCard said today's ruling would ultimately make payments more expensive for consumers.
Announcing a further appeal against the decision, Javier Perez, president of MasterCard Europe, said: "MasterCard balances the interests of both consumers and retailers, so that each party pays its fair share of the costs for the benefits it receives.
"Today's ruling, if it stands, would upset that sharing and tip the balance decidedly against consumers. It would also threaten the continued delivery of the most advanced electronic payment technologies in Europe which, in turn, are essential to facilitating business and driving economic growth."
According to CMS Payments Intelligence, a retailer currently faces a charge of up to 40p on a card transaction worth £20. A customer paying £1,500 for goods could leave the retailer facing a charge of up to £30.
Such costs are eventually passed on to customers as a general cost - hitting all customers, whether cash or card payers, said the organisation.
EU Competition Commissioner Joaquin Almunia said: "Today is a good day for payment card users in Europe. In its first judgment on the issue of multilateral interchange fees, concerning the MasterCard case, the court confirmed that these fees restrict competition and inflate the cost of card acceptance by merchants without leading to benefits for consumers.
"I welcome this judgment which confirms that banks, in the framework of a card payment scheme, cannot restrict competition by agreeing on certain charges to the detriment of consumers."
The Commissioner said the result confirmed the Commission's approach to card fees in general and its efforts to bring interchange fees down to "acceptable" levels.
He said Visa made a commitment in 2010 to limit its cross-border interchange fees as well as some domestic fees for debit card transactions to 0.2% - but a Commission investigation into Visa's credit card fees was continuing.
"This ruling will also have an impact on a number of ongoing court proceedings in member states concerning domestic fees," said Mr Almunia.
"The Commission invites Visa and MasterCard to consider carefully how to bring their multilateral interchange fees in the EU in line with competition rules."
In 2006 card payments in the EU cost retailers about 25 billion euros - fees the Commission says ultimately get passed on to consumers.
"They are also an obstacle to the emergence of a single payments market. The Commission will pursue its efforts to lift these obstacles," added Mr Almunia.