Banks in the clear over card charges

THE Office of Fair Trading has managed to please all sides in the row over credit card charges to retailers by ruling that there is no need for a formal investigation by the Monopolies and Mergers Commission.

The banks claimed that the decision by Sir Bryan Carsberg, Director-General of Fair Trading, meant they had been cleared of any uncompetitive behaviour in the charging system. This involves one bank acting as a 'merchant acquirer', processing all the card transactions for a single retailer and negotiating the interchange fee with individual card issuers.

A spokesman for Lloyds Bank said: 'He has said that it is not anti-competitive, and is not going to look at it again for two years. A Barclays spokesman said it was 'a victory for the consumer. The banks have been absolved of any collusion and of making excessive profits.'

Sir Bryan began investigating the card processing market after retailers complained that substantial increases in interchange fees proposed by the banks as issuers of cards amounted to an abuse of power.

This fee is paid by the merchant acquirers to the issuing banks and accounts for around 1 per cent of the overall 1.8 per cent merchant service fee. The retailer is not in a position to influence or even take part in the negotiations.

Sir Bryan said that merchant service charges had fallen since the last MMC report on credit cards in 1989. The increase in the interchange fee reflected the cost of the service .

But he is also seeking further justification of the rule that only card issuers may become merchant acquirers. He will be looking at whether retailers could become their own processors or whether free-standing organisations should be allowed to do it.

Sir Bryan is to look at whether debit and charge cards such as American Express and Diners Club should be brought into line with the credit card companies, which are not allowed to insist that retailers charge the same prices for card users and cash customers.

Colin Smith, a spokesman for the consortium of five supermarkets that made a formal complaint to the OFT, said: 'We welcome the director-general's report which suggests that our complaint raised important issues. He will be looking at it again in two years' time, which will be five years after the last MMC report.'

On a typical pounds 30 purchase at a large retailer, the charge for processing a cheque would be about 6p-8p. The cost of a purchase by debit card is rising in April from 4p-5p to 8p-10p while a credit card transaction would cost the store 40p-50p.