Mastercard agrees to cut fees it charges banks

Mastercard agreed to slash the fees it charges banks across Europe as part of a deal with the European Commission yesterday in a move welcomed by British retailers.

The company last October raised the fees it charges banks to be part of its payment network. The additional fee is paid by banks to Mastercard to be part of its network – the cost is then passed on to retailers.

Mastercard, which has been fighting EU attempts to force it to remove the charge altogether, yesterday offered to halve the fees it charges as a temporary measure.

The British Retail Consortium said the move was encouraging, especially if the savings are passed on to retailers, and added it estimates scrapping such fees will save banks £15m a year on Mastercard transactions in the UK.

"If fully passed on to retailers, the competitive retail environment will mean customers benefit as the savings are reflected in shop prices," the industry body said.

The action against Mastercard, the world's second largest credit card network, is part of a move by Brussels to stimulate economic growth by boosting the affordability of goods and services through cheaper banking and card fees.

"These fees are simply a hidden source of revenue for banks," the EU Competition Commissioner, Neelie Kroes, said yesterday. "Mastercard could not justify their level."

The European Commission ruled in December 2007 that the US company's cross-border multilateral interchange fee (MIF) on its credit and Maestro debit cards, levied on retailers, breached EU antitrust rules and must be changed within six months.

Mastercard rejected the ruling and appealed to the European Court of First Instance in a case that has yet to be concluded. It also bumped up its fees last October and re-introduced a MIF.

The British Retail Consortium also called on Visa to follow suit.

"Given Mastercard's action, Visa must also confirm it has no intention of imposing scheme fees of its own," Alisdair Gray, the British Retail Consortium's Brussels director, said.

However, Mastercard said the undertakings were temporary until the court case was resolved, which could take many months.

The company argued that the fees it will now charge are too low to raise funds to invest in new products.