When the European Union started to go on a jihad against credit card fees there were those issuing small parp squeaks of common sense. The credit and debit card networks cost money to operate. Thus, someone, somewhere, must be paying the costs of running those credit and debit card networks. The logical place for those costs to be allocated, the someones, is the people who use the network. The logical somewhere is at the point of use. Any other allocation is going to lead to an incidence problem. Either people unassociated with the networks will have to pick up the costs or the same people will but they’ll be higher having travelled by a roundabout route.
This was all said before the EU’s insistences and lo, so it has come to pass:
It was meant to be the end of the rip-off that cost consumers hundreds of millions of pounds a year. In January, all extra charges for using a credit or debit card to pay for goods and services were banned to prevent nasty surprises at the checkout. However, five months on, increases in the cost of transactions by Visa and Mastercard mean consumers now face the prospect of paying more for goods and services.
There hasn’t been an increase in costs. There’s just been a reallocation of them:
In 2015, the EU introduced rules to cap increasingly high interchange fees. It was on the back of these reforms that UK traders have been banned from charging customers a levy at the checkout.
But it has backfired. Visa and Mastercard, which dominate the market, have simply increased scheme fees, in some cases by up to 100%. And traders can get around the ban on surcharges by incorporating the extra processing costs in their retail prices. In short, it is the consumer who pays in the end.
Before the ban, customers could see the extra charge for using a card and had the option of choosing a cheaper payment method, whereas now everyone has to shoulder the cost, whether they use cash or card.
“It’s a classic example of the unintended consequences of regulation,” says James Daley, managing director of campaign group Fairer Finance. “All the regulator has done is squeeze one end of the balloon, and made the other end bigger.”
Yes, quite. And the warnings were given. Everyone now pays higher costs so that the richer among us – and it is the richer, the poor are more likely to be using cash – benefit. Which really isn’t one of those known aims of public policy, is it?
So, yes, the European Union is run by idiots. But then we already knew that too, given the existence of the euro. Thank God we’re leaving, eh?