MasterCard appeals Commission decision on cross-border fees


MasterCard decided yesterday to challenge last December’s decision by the European Commission which confirmed the illegality of cross-border interchange fees imposed by the American company to all transactions made in Europe with a credit or debit card.

MasterCard launched a formal appeal at the European Court of First Instance, which deals with disputes between private companies and the EU institutions.

The American company considers its multilateral interchange fees (MIF) to be “fair” and complains about the regulatory approach chosen by the Commission. MasterCard fears that if the Commission’s decision is followed by European national regulators it would be “a blow” to the whole European payment industry.

A multilateral interchange fee is an interbank payment made for each transaction carried out with a payment card. In the EU over 23 billion payments are made every year with payment cards, the overall value of which exceeds 1,350 billion euros.

sector inquiry into retail banking conducted by the Commission between 2005 and 2006 found that in five European countries (Denmark, the Netherlands, Norway, Finland and Luxembourg) the payment card system worked well without MIFs.

Nevertheless, the Commission recognises that a complete and immediate elimination of the interchange fees would have negative effects on the market. Therefore, Brussels does not consider MIFs to be illegal as such, but holds that the system is compatible with EU competition rules “if it contributes to technical and economic progress and benefits consumers”.

MasterCard, and previously Visa, must gradually reduce their fees, or risk heavy fines from Brussels. Last December the Commission threatened MasterCard with a daily fine of 3.5% of its daily global turnover in the preceding business year. The Visa system’s exemption period expired at the end of 2007.

While appealing to the EU Court, MasterCard reaffirmed its intention to comply with the Commission’s decision before the dispute is settled. The proceedings are open-ended and can sometimes go on for years.

The Commission is seeking to do away with anti-competitive behaviour in the payment card sector ahead of the full introduction of the Single Euro Payments Area (SEPA), which was officially launched at the beginning of 2008. By the end of 2010 all the payment cards in Europe have to be replaced by new SEPA-compliant cards (see our Links Dossier on SEPA).

Javier Perez, president of MasterCard Europe, 
commented: "MasterCard firmly believes that market forces, not regulation, should drive key decisions such as the setting of interchange fees and retailers' choices over which forms of payment to accept. If left unchallenged, and especially if followed by national regulators, the Commission's decision would not only be bad news for consumers but a blow to the European payments industry". 

"The Single Euro(pean) Payments Area for payment cards, launched at the beginning of the year, will continue to require enormous investment and commitment by market players. It's difficult to expect them to expand into new markets when regulation lowers the incentive to take those risks. In our view, the best way to proceed for the payments industry and SEPA is to follow the established European public policy principle of relying on competition to deliver what consumers want," he added.

Upon the day of the Commission's decision against MasterCard, Competition Commissioner Neelie Kroes said: "Multilateral interchange fee agreements such as MasterCard's inflate the cost of card acceptance by retailers. 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. The Commission will accept these fees only where they are clearly fostering innovation to the benefit of all users."

"This is a tax on all retail transactions and a blatant violation of the EC competition rules", argued Xavier R. Durieu, Secretary General of EuroCommerce, commenting a recent action by the Commission. "All consumers pay a hidden tax through higher sales prices: a SEPA based on MIF products will deliver the opposite of its promises (increased competition and lower prices), because the mechanism distorts competition".

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. 

MasterCard's MIFs range between 0.4% of the transaction value and 1.05% for payments with Maestro debit cards, and between 0.80% and 1.20% for transactions with MasterCard consumer credit cards.

In 2002, the Commission decided to temporarily allow the same system applied by Visa, provided the company lowered its MIFs. Visa agreed to progressively reduce the level of its fees from an average of 1.1% to 0.7% for debit card payments, and established a flat-rate fee of 0.28 euros for debit card transactions. The exemption expired at the end of 2007.

  • In the coming years, the European Court of First Instance will rule on the EU Commission/Mastercard case.
  • 31 Dec. 2010: Deadline for the replacement of current credit cards with SEPA-compliant cards.

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