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Interchange fees - returns or recoveries?

Interchange fees are paid by merchant acquirers to card issuers as a percentage of each and every credit and debit card transaction. Acquirers pass these costs onto their merchants which may result in higher prices for consumers. Analysts have struggled to quantify these fees but estimate that they may come to some £2 billion per year in the UK alone. 

The level of interchange fees varies according to products, their means of purchase and the jurisdictions involved. However, there are mechanisms in place to cap these fees. For example the EU's Interchange Fee Regulation (Regulation (EU) 2015/751) caps fees at 0.2% and 0.3% for most debit and credit card transactions respectively, within the European Economic Area. 

These caps are the result of the 'Merchant Indifference Test' i.e. fees must be low enough to ensure that a merchant is not materially disadvantaged by accepting card payments.

The build-up

In 2007, the European Commission decided that the interchange fees applied by MasterCard to cross-border transactions (within the EEA) restricted competition between acquirers and inflated merchants' costs, without leading to any proven efficiencies (COMP/34.579).

Following multiple appeals, the ECJ confirmed the decision in 2014 (EU:C:2014:2201). However, in the meantime (during 2009) MasterCard reduced its cross-border interchange fees. 

In 2010, following the EC's investigation into Visa's European interchange fees, Visa also reduced its cross-border interchange fees for debit cards. This was followed by the 'Visa Commitments' which were made legally binding by the European Commission and led to further capping and transparency measures applied to these fees in 2014.

In 2015, the EC opened another investigation into MasterCard, based on interchange fees applied to card payments made into the EEA (most of which were domestic transactions), acquiring merchants across borders and the business practices of the card scheme.

These investigations and undertakings laid the foundations for four key rounds of UK litigation that would follow over the next two years.

Round 1 – Sainsbury's claims damages from MasterCard

In July 2016, Sainsbury's Supermarkets built on the EC's decisions of 2007 and 2014 and recovered damages from MasterCard (Sainsbury's Supermarkets Ltd v MasterCard Inc [2016] CAT 11). 

Sainsbury's alleged that MasterCard's interchange fees prevented acquiring and issuing banks from negotiating lower interchange fees. As a result, Sainsbury's claimed the difference between the interchange fees that it paid and the interchange fees that it would have paid, had the acquiring and issuing banks been free to negotiate. The Tribunal calculated the recoverable loss at some £68.6 million.

MasterCard has appealed the decision and is seeking to rely on further evidence.

Verdict: interchange fees above a certain level are liable to challenge in the UK.

During 2015 and 2016, both Tesco and WHSmith settled high value interchange fee claims against MasterCard and Visa. Whilst the details of the settlements are confidential, we anticipate these deals were based on the analysis applied in the Sainsbury's claim. It is likely that other confidential settlements have been reached on similar grounds.

Round 2 – Consumer Rights Act claim against MasterCard

In mid-2016, Walter Merricks (former chief Financial Ombudsman) led the UK's first group claim under the procedure introduced by the Consumer Rights Act 2015, on behalf of UK consumers (Case 1266/7/7/16 Walter Hugh Merricks CBE v MasterCard Inc and Others).

Merricks alleged that the interchange fees applied by MasterCard to cross border transactions between 1992 and 2008 (which were determined to be too high and anti-competitive back in 2007) resulted in increased costs to UK consumers. He claimed £19 billion (some £400 per consumer).

Last month the Tribunal decided that the claim would not proceed because it was not convinced that Merricks could evidence increased consumer prices.Verdict: forget millions, these claims may be worth billions. However, obtaining effective expert evidence will be challenging.

Round 3 – Asda seeks to recover fees from MasterCard

In January 2017, Asda and a number of household name retailers sought to recover £437 million in interchange fees from MasterCard (Asda Stores Ltd v MasterCard Inc [2017] EWHC 93 (Comm). 

In a key departure from Sainsbury's allegations, Asda et al claimed that interchange fees at any level were unlawful.

The Court decided that MasterCard's interchange fees restricted competition because they prevented acquirers from competing for merchants' business by offering fees below the level set by MasterCard (as per the EC and Sainsbury's decisions).

However, MasterCard successfully argued that if interchange fees were set at zero (as the claimants contended) the card scheme would collapse. Consequently, interchange fees (at least at some level) were objectively necessary.

In addition, the Court found that MasterCard's fees fell below the exemptible level for anti-competitive practice because they provided a number of economic benefits. 

Asda is appealing the decision.

Verdict: interchange fees are necessary to enable card schemes to function and provide economic benefits. UK merchants may have to accept fees at some level.

Round 4 – High street merchants claim fees against MasterCard

A further group of 27 high street merchants have issued a further interchange fee claim against MasterCard and Visa for some £300m.

The specific details of the claim have not yet been made public. However, we expect the claimants to introduce different arguments to those seen in the Sainsbury's and Asda litigation. Service of pleadings is expected within the next few months, as are further claimants.

Verdict: interchange fees remain contentious and we expect to see more claims and new arguments in the future.


Merchants continue to see interchange fees as a route to recovery.

While the courts have accepted (in the Asda claim) that interchange fees are not intrinsically unlawful, it is the level of those fees that remains open to challenge (as per the Sainsbury's decision). Despite recent high profile settlements, merchants still have an appetite to take these claims to trial.

Stakeholders and lawyers will note the interplay between the Consumer Rights Act claim and the ongoing merchant litigation because sooner or later the courts will have to decide who has actually suffered the loss: the merchants or the consumers? MasterCard did raise a 'pass-on' defence to the Sainsbury's claim but this failed because:

1) There was no evidence of increased retail prices, let alone a causal connection between interchange fees and prices; and

2) MasterCard was unable to identify a class of purchasers in a position to claim damages.

So as far as the second limb of the defence goes, it appears the Consumer Rights Act 2015 and Mr Merricks may have combined to identify a multitudinous class.

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