The government will cap interchange fees on credit and debit card transactions from December in a move forecast to save UK business in excess of £480 million a year.
The Treasury launched a consultation on the proposals on Monday as it confirmed a cap of 0.3% on credit card transactions and 0.2% on debit cards from December 9, slashing the current average interchange fee of 0.85% on credit cards.
Ministers promised “significant savings”, with Chancellor George Osborne insisting: “I expect businesses to pass on these savings to consumers.”
Interchange fees are a significant component of card transaction fees, paid by a merchant acquirer (a merchant’s bank) to a card issuer (the cardholder’s bank) as a percentage of a transaction. The European Commission estimates the value of interchange fees in the UK at £1 billion a year, although the Treasury said “the figure could be double”.
The move should assist small and medium-sized businesses (SMEs) after a government report noted in 2013: “Smaller businesses often pay higher rates as they lack the financial power to negotiate better terms.”
However, consumers appear unlikely to benefit. Travel industry consultant Andy Cooper said: “I suspect either the merchant acquirers will hang on to cash for longer or the consumer will lose out on the terms and conditions of credit cards. Banks are not charities.”
His view was confirmed by the UK Cards Association, whose head of policy Richard Koch said: “It will be a commercial decision for companies how they react, but this may include additional fees or changes to rewards offers for customers.” He added: “A cap could mean less to invest in fraud prevention and competitive offers for consumers.”
The association estimates credit card revenue will fall by £625 million per year, against a British Retail Consortium estimate of savings to UK merchants of £480 million.
UK travel agents handled credit card transactions worth £6.8 billion in the 12 months to May and debit card bookings worth £12.6 billion, according to UK Card Association figures. Agents handled half of all debit card travel bookings by value.
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