OFT extends plastic probe to debit cards

The Office of Fair Trading (OFT) is extending its investigation of fees charged by credit card administrators into the debit card market, ensuring the inquiry will push on into an eighth year.

The competition regulator has been investigating so-called interchange fees on credit cards since 2000. Interchange fees are the charges levied by the likes of Visa and Mastercard to the banks, each time they process a card transaction. The banks in turn are forced to pass these on to the retailers, who ultimately have to absorb the cost or pass it on to consumers.

Mastercard, which owns the Maestro brand, and Visa dominate the UK debit card market, with market shares of 40 and 60 per cent respectively. They are estimated to generate almost £1bn a year in interchange fees from debit cards.

Visa charges between 17p and 20p a transaction for immediate debit card clearances, while Mastercard charges a flat fee of around 3p, plus a percentage of the transaction - typically between 0.4 and 1.05 per cent. The average debit card transaction in the UK is currently £42, according to Apacs, the card industry's trade association. More than 4.1 billion transactions are made on debit cards in the UK each year.

Mastercard said yesterday it found the OFT's announcement both "surprising and disappointing", pointing to its victory over the OFT in the Competition Appeal Tribunal 17 months ago, when it was accused of breaching UK and EU competition laws with its interchange fees.

"As it is the case for credit cards, interchange fees play a vital role in debit card schemes such as Maestro by allocating the costs of operating the payment service in a transparent manner among all participants," the company said in a statement. "We will continue to co-operate fully with the OFT while rigorously defending our position with regards to interchange fees and the way they are established."

Simon Kleine, vice-president of corporate communications at Visa, said that his company had set its debit interchange rate in accordance with principles which were agreed by the European Commission in 2002.