How Visa & Mastercard are Making Everything More Expensive

Every time you tap your Visa or Mastercard, a fraction of your payment quietly disappears as a transaction fee, friend. This is usually unnoticed by customers, but businesses feel the pinch deeply. Together, these two giants dominate 95% of all card payments in the UK.

Recently, they have been accused of charging exorbitant fees and restricting competition. Apparently, these inflated fees have cost UK businesses at least £170 million annually since 2017.

So how did they achieve this level of dominance?

It all started in 1950, when Frank McNamara introduced the world to the Diners Club card after finding himself at a restaurant without his wallet. This invention paved the way for today’s credit cards.

By 1958, American Express and Bank of America entered the market with their own cards. Then, in 1966, Bank of America began licensing its card network to other banks across the United States, eventually rebranding the network as Visa. That same year, under this licensing arrangement, Barclays introduced the UK’s first credit card, known as Barclaycard.

Meanwhile, several US banks formed the Interbank Card Association (ICA) in 1966 to rival Bank of America’s network. Dubbed “Master Charge” at first, it became MasterCard in 1979.

Fast-forward to today, and whenever you make a purchase, your card information swiftly travels through a secure network to your bank, which immediately approves or declines the transaction. Visa or Mastercard then facilitates the transfer of funds between your bank and the merchant’s bank. They take a fee for each transaction.

Together, they control almost 90% of global card transactions (outside of China), creating what is known as a duopoly. In the UK alone, they handle 95% of debit and credit card payments.

But why can’t other players enter the market?

Think of payment networks like a network of motorways. Building one short stretch of a road in the middle of nowhere is not only expensive, but it offers little value unless it connects seamlessly to the rest of the country’s motorways. Similarly, any newcomer to payment processing faces high upfront costs for establishing its own digital ‘routes’ without the guarantee of meaningful traffic. Until those new roads link to a broader network—banks, merchants, customers—no one has a compelling reason to use them.

Yet the real barrier doesn’t end with infrastructure. Visa and Mastercard benefit from the network effect. That is, each new user raises the value of Visa and Mastercard’s systems. More users mean more transactions, which draws in yet more users. This positive feedback loop explains why their dominance grows continually and why alternatives struggle to break in.

Over the years, this dominance has repeatedly led to allegations of unfair competition and excessive fees, resulting in lawsuits, settlements, and regulatory interventions worldwide.

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