MasterCard agrees to lower cross-border fees

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MasterCard announced yesterday (1 April) its intention to significantly reduce charges on card payments made across Europe – so-called multilateral interchange fees (MIF) -triggering enthusiastic reactions from Brussels, but disappointing retailers and consumers, who were campaigning for wider cuts.

Under pressure from the European Commission, MasterCard decided to bring cross-border MIFs on credit card transactions down to 0.3% from the current range of 0.8% to 1.9%. 

On the Maestro network of debit card transactions, MasterCard has agreed to cut charges to 0.20% from the current range of 0.4% to above 0.75%.

Both sets of measures will enter into force as of July 2009.

The Commission welcomed the move and decided to no longer go ahead with the procedure begun in 2007 against MasterCard. “Assuming these commitments are kept, I see no further need to pursue MasterCard for infringing the antitrust rules,” said Competition Commissioner Neelie Kroes during a press conference in Brussels.

The move will increase EU pressure on Visa to lower its own charges, as they will now be higher than MasterCard’s. “I will not allow Visa to benefit at the expense of MasterCard,” Kroes said, adding that the fees and the methodology adopted by MasterCard could be used as a kind of benchmark for others in the sector. Currently, Visa applies a 0.61% rate for cross-border EU credit transactions, and an average €18 cents for debit payments.

In a statement, Visa Europe said: “The announcement relates to MasterCard. It does not legally apply to Visa Europe’s interchange, and Commissioner Kroes has made clear that each case should be judged on its own merits.”

In any case, MasterCard’s move on cross-border payments could trigger similar moves at national level where the majority of card transactions take place. Investigations are ongoing in several EU countries by competent antitrust authorities. If pursued until the last stage, these investigations could have a much bigger impact on payment card companies than decisions taken at EU level.

MasterCard appeal

While apparently bowing to the Commission, MasterCard also underlined that it considers unfair the new level of fees forced upon the company, saying it will apply them only temporarily.

“We believe these interim interchange fees significantly undervalue the benefits merchants receive from accepting payment cards, such as a payment guarantee and higher sales than with cash,” said Javier Perez, president of MasterCard Europe, in a statement.

Moreover, the payment company reiterated its will to go ahead with an appeal lodged with the European Court of First Instance against the Commission decision which judged as illegal the original level of fees applied by MasterCard. The Court has not yet decided a date for the ruling.

Retailers and consumers sceptical

Retailers and consumers organisation looked at the MasterCard announcement in a completely different way. In a a statement, EuroCommerce, the association of European retailers, said it is “very disappointed at the weak compromise announced by the Commission today on MasterCard interchange fees”. 

And BEUC, the European consumer organisation, had previously asked for MIFs to be brough down to less than €1 cent per transaction.

The methodology applied by MasterCard is based on the principle that retailers should not pay higher charges when using cards rather than cash, due to the additional transportation and security expenses linked to cash.

But EuroCommerce questioned this rationale and invited the Commission to review its calculations. The European Security Transport Association (ESTA), which represents transportation and cash-handling service providers, is campaigning for a review of the idea that cash is an expensive means of payment.

In addition, lowering MIFs will not necessarily lower consumer costs, industry sources warned, saying expenses for cardholders could instead be raised in order to offset the losses suffered by payment cards companies. Moreover, consumers could also see increased surcharges on card payments from retailers. In a statement, Xavier Durieu, EuroCommerce secretary-general, warned that “the implication is that retailers should apply surcharges, particularly on commercial and more expensive cards”.

A multilateral interchange fee (MIF) is an interbank payment made for each transaction carried out with a consumer card. Retailers are charged for the fee and ultimately affects the price of goods, whether they are purchased with a card or not. The issue therefore concerns all consumers.

In the EU, over 23 billion payments are made every year with payment cards, the overall value of which exceeds €1,350 billion. According to figures provided by the European retailers' association (EuroCommerce), MIFs amount to €12 billion per year.

Yet the European Commission only has the power to intervene on cross-border transactions, which occur for example when a French tourist uses his card in a shop in Amsterdam. These represent some 5% of total MIFs, according to the EU executive.

The Commission considers MIFs useful, only if charged in an appropriate way. But EU Competition Commissioner Neelie Kroes judged as too high the fees imposed by the main payment operators active in Europe: Visa and MasterCard.

MasterCard was requested in December 2007 to lower its fees or face a fine (EURACTIV 20/12/07). Visa, whose tariffs have so far been lower, has been under investigation since March 2008 (EURACTIV 27/03/08).

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