Brussels ruling on credit card fees could lead to fall in prices

A European ruling yesterday that could force Mastercard to cut its fees - and potentially lead to cuts in prices charged by retailers - may also bring a similar demand by competition watchdogs in Britain.

The credit and debit card network was warned by the European commission yesterday that it faced daily fines unless it changed its fee structure within the next six months.

Neelie Kroes, the European Union's competition commissioner, said the interchange fee charged when customers used their cards inflated the cost of card acceptance by retailers. "Consumers foot the bill, as they risk paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices paid not only by card users but also by customers paying cash," she said.

The ruling affects cross-border payments but also domestic transactions in a number of EU states - including Ireland, Belgium, and Italy - which set their rates against international ones.

It could have repercussions in Britain as the Office of Fair Trading is already looking at the fees paid on credit and debt cards and will take account of the ruling during its investigation.

Sir Terry Leahy, Tesco's chief executive, welcomed the decision. "Tesco pays about £100m in fees to the banks for processing credit and debit cards - that's £100m we haven't been able to invest in price, range or service for our customers," he said.

Mastercard intends to appeal against the decision, arguing that "market forces, not regulation, should drive key decisions such as the setting of interchange fees".

Kroes indicated that she would also reopen an inquiry into Visa's fees when the company's five-year exemption from EU cartel rules expires at the end of the year. Visa said: "We see no evidence that Visa Europe's interchange has acted as a tax on consumption or has caused consumers to pay twice."

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