Mastercard has been ordered to scrap the billions in charges it levies on cross-border payments in Europe in a move that could lead to credit and debit card fees being slashed inside the UK.

Europe’s competition watchdog told MasterCard to scrap the fees it charges retailers on cross-border transactions, saying that the practise has inflated retail prices for 15 years without benefitting consumers.

Lobby groups estimated that the ruling will save European retailers €10 billion a year. However, analysts questioned how much of that would be passed to consumers, arguing that similar caps on charges in Australia benefitted retailers but not shoppers.

MasterCard currently charges a so-called “multilateral interchange fee” of between 0.4 per cent and 1.2 per cent on international transactions made using MasterCard and Maestro-branded credit and debit cards.

The European competition commissioner Neelie Kroes said that consumers effectively ended-up footing the bill, “as they risk paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices paid not only by card users but also by customers paying cash”.

MasterCard said it would appeal the decision, which is also expected to affect Visa Europe, its biggest rival.

If it does not comply with the Brussels ruling, MasterCard faces fines of 3.5 per cent of the company’s global daily turnover. The company reported full-year revenues of $3.3 billion in 2006.

The ruling will also apply to domestic credit card transactions within eight European Union states – Belgium, Ireland, Italy, the Czech Republic, Latvia, Luxembourg, Malta and Greece – as they peg their rates to that set internationally by MasterCard.

It is also expected to affect how national watchdogs elsewhere in the European Union, including the UK, treat domestic card fees.

“Tesco pays about £100 million in fees to the banks for processing credit and debit cards - that’s £100 million that we haven’t been able to invest in price, range or service for our customers,” Terry Leahy, the chief executive of Tesco, said.

However, MasterCard downplayed the ruling's significance, claiming it affected only about 5 per cent of its transactions. "We don't anticipate any significant near-term financial impact from today's decision," Javier Perez, the president of MasterCard Europe, said.

Shares in MasterCard rose $4.34, or 2.2 per cent, to $206.11 in morning deals in New York. The stock has more than doubled this year.

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