David Lindsay

The Chamber of General Retailers and Traders yesterday described the charges and taxes associated with credit card usage in Malta as “abusive” and, in many cases, “discriminatory”.

The GRTU yesterday called on the authorities to remove the annual tax paid by holders of credit cards and to reduce the interchange charges paid by retailers, which has been as much as halved, following interventions by governments in other countries.

The controversy, which has been ongoing at European and international level for years now, stems from the charges paid by the retailing community in order to offer the service to consumers and, in Malta’s case, the annual taxes paid by credit card holders.

Countries such the UK, Poland and the Netherlands in Europe, as well as the United States, Australia and New Zealand, have investigated, ruled against and, in some cases, imposed multi-million euro fines on banks and credit card companies for anti-competitive behaviour.

Recent figures released by the European Central Bank show the use of credit cards is continually rising in Malta, with figures showing a 98 per cent increase in the use of plastic for payments in Malta between 2002 And 2006.

Speaking yesterday, GRTU secretary-general Vince Farrugia said the Chamber has been in discussions with the Finance Ministry, the Malta Financial Services Authority, the Office for Fair Competition and the Central Bank of Malta over the state of affairs, and expressed the hope that the authorities would be acting in the near future to correct the situation. The authorities are in the final stages of publishing a report on all charges levied by local commercial banks, which would be studied with a view to taking action to address current problems.

Maltese credit card holders are hit by an annual Lm7 tax per year and with some 135,000 credit cards in use in Malta, the annual tax the government nets stands in the region of Lm945,000 a year.

The situation in Malta, Mr Farrugia added, was relatively unique in that the government levies such a tax on the holding of credit cards, meaning that the government actually punishes consumers for having credit cards.

Few people, Mr Farrugia said, realise how credit card mechanisms work behind the scenes, and how detrimental they are to both retail operations and consumers’ purchasing power.

Retailers pay both a merchant service change as well as a multilateral interchange fee, which, combined, stand at an average of three per cent of the value of each transaction enacted at point of sale.

As such, if a consumer pays Lm100 at a retail outlet, the outlet itself only takes in Lm97. The practice, Mr Farrugia said yesterday, discriminates in favour of larger businesses such as supermarkets, which could spread the charges across larger volumes of sales, while small businesses simply could not.

Moreover, the practice was unfair also with respect to consumers who pay for goods and services strictly in cash, since the extra charges incurred by retailers have to be passed on, in one form or another, to consumers across the board. As such, consumers end up paying a hidden fee for every credit card transaction.

But while credit card companies say such charges are necessary to cover expenses related to the interest-free period, payment guarantees and transaction costs, Mr Farrugia pointed out how a study by the European Commission has showed banks end up making some 65 percent profit from the charges – profit levels described by EU competition commissioner Neelie Kroes as “outrageous”.

Credit card firms, the reasoning goes, make more than enough money from annual card fees and interest charges to cover their costs while also making a legitimate profit.

Moreover, the three percent average charge was being levied after value added tax was incorporated into the bill. While in other countries credit card companies have been made to donate takings from the VAT element to charitable causes, there was no such provision in Malta meaning that the extra funds went to the profits of credit card firms, Mr Farrugia said.

The situation varies between EU member states since, the GRTU points out, credit card firms such as Visa and MasterCard and the banks working with them “levy interchange fees not on the basis of actual costs, but on the basis of what the market will pay”.

Maltese petrol stations, he added, were prepared to begin accepting credit cards for petrol payments, but their narrow profit margins, of two cents per litre, meant, given the three percent charge, they would be left with approximately a one cent profit when customers used credit cards.

Another area of concern pointed out yesterday was next year’s launching of the Single European Payments Area, intended to do for payments what the euro has done for cash.

Although the system holds a number of benefits, banks could use the advent of SEPA as a reason for abandoning the relatively low-cost national debit card schemes and move to Visa or MasterCard pan-European debit card systems based on the costlier and anti-competitive interchange fees.

With some 345,000 national debit cards issued in Malta, compared with 135,000 credit cards, the issue of charges and taxes could be greatly compounded unless the situation is properly regulated.