Vendorcom, the think tank for the financial services vendor community, held an update for members to the Interchange Fees debate.

Interchange is the charge levied by the card schemes on retailers to process card transactions.  In some cases the charges may be waived by the card schemes, in others they may be lowered; they are a marketing tool as well as a revenue stream.

As credit card revenues have reduced over the past few years as consumers move towards debit cards, interchange fees have become an important source of revenues.

The argument from retailers is that these fees and the bank levied transaction and banking fees add to the cost of goods and services; the schemes argue that these fees are necessary to reflect the cost of processing transactions.

The European Commission has long wanted to cap the fees as part of their harminisation plans across Europe; the schemes argue that these fees are necessary and if capped would need to be 'topped up' with other charges to make up revenues.

The Commission hopes that reduced fees would be passed on to the consumer by the retailers; the schemes think this is unlikely and the retailers will use the savings to increase their income. Marion King, UK president of MasterCard, told The Mail on Sunday last year: ‘Interchange fees have been capped in Australia, America and Spain. The merchants do pay less, but that saving is not passed on to the consumer.'

Last week, Advocate General Paolo Mengozzi of the European Court of Justice the most senior adviser to the court, declared that MasterCard’s appeal to the courts judgement that the fees were excessive should be thrown out.

A final decision by the court will be made in April and following Mengozzi's comments it is unlikely to that MasterCard's appeal will now succeed.

The current position then is that fees are likely be capped and the schemes have said if that's the case, then they will need to make up the loss of revenue; we wait to see what they do.