Commission rules against MasterCard in cross-border fee dispute

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In a long-awaited decision, the Commission has ruled against MasterCard's interchange fees, saying they violate EU rules on restrictive business practice and "act like a tax on consumption".

The Commission ruled, on 19 December, that MasterCard's multilateral interchange fees (MIF) for cross-border payment card transactions violate EU rules on restrictive business practices. Interchange fees are paid by the merchant's bank to the cardholder's bank at any point-of-sale transaction using a credit card, such as MasterCard or Visa.

The European competition authority argued that these fees "inflated the cost of card acceptance by retailers without leading to proven efficiencies" and acted "like a tax on consumption".

"Consumers foot 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," Competition Commissioner Neelie Kroes said.

If MasterCard does not comply by redrawing its fees within six months, the Commission said it would impose daily penalty payments as high as 3.5% of the company's daily global turnover. MasterCard, however, has announced that it will appeal against the Commission's decision.

Commissioner Kroes underlined that interchange fees in principle were not considered illegal, but that they would have to be justified in terms of the benefits they bring to consumers. The Commission said that its decision would also pave the way for the introduction of a Single Euro Payments Area (SEPA) by removing the danger of price increases resulting from interchange fees.

The decision will also affect MasterCard's main competitor Visa. Visa also applies interchange fees, but was granted an exemption by the Commission in 2002, after it substantially reduced the level of fees and increased transparency. However, this exemption runs out at the end of the year. From 1 January, Visa will also have to prove that its fees are in line with EC rules and contribute to economic and technological progress, and bring benefits to consumers.

European retailers hailed the Commission's decision and said that this could save them up to €10 billion a year. Feargal Quinn, President of EuroCommerce commented: "This is great news for all consumers in Europe: it will mean lower prices." Retailers argue that due to market pressure, retailers will pass on their savings to customers.

Credit card companies, however, argue that the fees are necessary to make important investments. A Visa Europe  spokesperson said. "Fees must be set at commercially viable levels, so that the industry can justify its continued investment in innovation, security and payment efficiency, as the Commissioner recognised. This will then assist in achieving the SEPA vision of an internal market in card payments."

Following a sector inquiry into retail banking services earlier this year, the Commission is taking a tough line on payment card operators (EURACTIV 31/01/07). In October, the Commission imposed a €10m anti-trust fine against Visa for restrictive practices (EURACTIV 04/10/07) and ruled that French payment card group Cartes Bancaires had infringed EU competition rules (EURACTIV 18/10/07).

The Commission is seeking to do away with anti-competitive behaviour in the payment card sector ahead of the introduction of the Single Euro Payments Area (SEPA), which is set to remove the remaining obstacles and reduce the cost of cross-border payments for consumers.

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