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News: OFT to investigate Visa card agreement

The OFT (Office of Fair Trading) is to investigate Visa and its members, which includes most major banks, regarding an agreement on its domestic multilateral interchange fee (MIF) applicable to consumer credit card, charge card and deferred debit card transactions in the UK.

The OFT argues that the collective agreement between Visa and its member banks on the interchange fee charged between card issuing banks and merchant acquirers, on Visa card transactions taking place in the UK, restricts competition and infringes Article 81 of the EC Treaty and the Chapter I prohibition of the Competition Act.

It also believes that, like the MasterCard MIF agreement, the Visa MIF agreement leads to an unduly high fee being paid to card issuing banks by merchant acquirers on every Visa transaction. The cost of these fees is passed on to retailers and ultimately to consumers.

The parties are now being given an opportunity to make written and oral representations to the OFT.

Purchases using a credit or debit card in a four-party payment card system, such as Visa, involve a number of steps.

Firstly, the cardholder purchases the goods or service from a retailer.

Step two sees the retailer sending the transaction details to its bank, known as the merchant acquirer.

Step three sees the merchant acquirer forwarding the transaction details to the bank that issued the credit card, the card issuer.

Step four sees the card issuer paying the merchant acquirer the retail price of the goods or service less the interchange fee.

Finally, the merchant acquirer pays the retailer the retail price less a merchant service charge and the issuer debits the retail price to the cardholder's account.

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