Customers will have to pay up to £11 a year for debit cards and £25 a year for credit cards, as a result of EU rules set to come into force, it's been estimated.
The European Commission wants to help businesses through proposed caps on fees levied on retailers when their customers pay by card.
But it will hit card issuers’ revenues by up to £2.4 billion, according to research by Europe Economics, commissioned by MasterCard, it says providers will recoup costs through the annual fees or by reigning in perks such as cashback.
The so-called ‘interchange fees’ are being targeted because of their high and varied cost - currently ranging from 0.1% to 2.5% – which often hit small businesses hardest.
The caps are to be set at 0.2% of the value of the transaction for debit cards and 0.3% for credit cards and will be rolled out within two years.
The Commission has argued that customers will benefit from the rules through lower prices at the till, as retailers pass on the savings.
“There is little evidence to support the claims that these proposals will be beneficial to consumers,” argued Peter Ayliffe, president and CEO of Visa Europe.
The boss of MasterCard Europe Javier Perez also said he is concerned “the rules would harm and inconvenience consumers and small merchants, as well as hinder competition and innovation”.
As well as capping fees, the regulation will ban customer surcharges, which some businesses – notably airlines –push when customers to make a payment by card. It says through capping interchange fees, there will be no justification for these costs.
"The interchange fees paid by retailers end up on consumers' bills. Not only are consumers generally unaware of this, they are even encouraged through reward systems to use the cards that provide their banks with the highest revenues,” said vice president of the Commission Joaquín Almunia.
“The regulation capping interchange fees will prevent excessive levels of these fees across the board. A level playing field will be created for payment services providers, new players will be able to enter the market and offer innovative services, retailers will make big savings by paying lower fees to their banks, and consumers will benefit through lower retail prices."
The charges currently cost UK retailers £850 million a year, according to the British Retail Consortium (BRC), which welcomed the ruling.
“We’re delighted with this landmark proposal. Capping these excessive and anti-competitive fees will support the UK retail industry by £362 million a year, boosting the industry’s ability to invest and innovate while continuing to deliver lower prices and value for customers,” said Helen Dickinson, BRC director general.
PayPal and internet payment services that work without the use of a credit card are also to be given a boost as part of the new Payment Services Directive.
And banks and all other payment service providers will need to step up the security of online transactions by including strong customer authentication for payments, meaning consume should be better protected against fraud.
The proposals also hope to encourage new players to enter the internet and mobile payments market.