Since 2007 the EU has had a single payments market, with common rules and limits on card fees. As a result of Brexit, the UK no longer comes under EU regulations, and both card schemes and card issuers are free to increase the fees they charge on card transactions between the European Economic Area (EEA) and the UK, and on domestic transactions in the UK. Higher charges could represent a significant burden for merchants at a time when the retail sector is facing unprecedented pressure.
The Merchant Service Charge: an overview
The Merchant Service Charge (MSC) is the fee paid by the merchant to its card acquirer when the merchant accepts a card transaction. It can be broken up into three main components, each going to a different entity in the payments system:
- the Interchange Fee (IF) represents the largest cost within the MSC. Although the card issuer is the recipient of the IF, the card scheme sets its level
- the Scheme Fee (SF) is paid to the card scheme for the services it provides
- the Acquirer Margin (M) is kept by the card acquirer for merchant processing services.
The European Commission has put in place regulation to reduce Interchange Fees
The cost of accepting card payments is seen as a growing problem for merchants around the world, with payment by cards increasing in popularity. The European Commission has progressively set caps on interchange fees in Europe.
The impact of Brexit on the Merchant Service Charge could represent a significant burden for merchants at a time when the retail sector is facing unprecedented pressure
- In October 2021, Mastercard and Visa will increase the Interchange Fees paid by European merchants selling online to the UK from 0.2% to 1.15% for debit cards and from 0.3% to 1.5% for credit cards.
- Moreover, Visa will also raise Interchange Fees paid by UK Merchants selling to Europe online.
- Scheme Fees are not regulated, and each Scheme has its own fee structure, often linked to the type of transaction, including whether it is cross-border in nature.
- Thus, from July 2022 Scheme Fees for both card-present and card-not-present transactions between Europe and the UK will be adjusted to inter-regional levels.