The European Commission is poised to publish new payments rules covering ‘interchange’ fees, which are charged on card transactions. These could unfairly hit Visa and MasterCard, leaving rivals American Express and Paypal unfair market advantage, says the president of MasterCard Europe.
Javier Perez is a member of the MasterCard management council. He joined MasterCard in 1996, after holding executive positions with Banco de Vizcaya Argentaria (BBVA), Banca Catalana and Visa International. He spoke to EURACTIV’s Jeremy Fleming in Brussels.
The report suggests cash comes at a price, should this influence the Commission’s thinking in its forthcoming new payment rules?
We think that if you force the consumer to pay for all the expenses of making a payment whereas before it was shared, that it’s going to make people revert back to cash. Hence people will revert back to cash because people think that cash is free. So if we make the cards very expensive they will say, “Here I have cash for free, I will not pay for the card.”
From an economic point of view that would be a disaster, because you are replacing a cheaper way of making payments with a more expensive one.
On top of that cash encourages tax evasion, the black economy and illegal activity.
Do you think that valuing cash will form part of the impact assessment of the Commission?
If we have to take the past as an indicator of the future, we should be concerned, because you should remember that the Commission based its original case for an update on the ‘20/30’ ‘agreement’, under which cards were valued at 0.20% on transactions, and cash at 0.30%. They said they would do a study on the cost of cash three and a half years ago. It has never been produced.
MasterCard is currently involved in a legal hearing testing the legality of interchange fees in Luxemburg. Why have you expressed concern that the regulation on interchange fees will be based on the Commission’s experience of dealing with MasterCard and Visa?
The next hearing we have is in July. It is a formal hearing which is ongoing and will follow its track. Then by the end of next year the court will make a final decision on our appeal. That is a separate issue from the legislation. The legislation must fix those things that are broken. If history is any indication of the future, then my assumption is simply – and things may change – that they might continue down the path that DG Competition has taken [against Visa and MasterCard]. So if DG MARKT were to continue the strategy that has so far been carried out by DG COMP, we could expect a forced reduction of interchange.
Potentially, such a move would exclude from regulation very large players such as American Express and Paypal from the legislation, simply because the Commission has not taken any action against them before. So that is the big picture that is really important.
If interchange fees needs to change, the Commission could effectively give preference to the Amex card model. The concept that payments have a cost is unavoidable, you cannot pretend payments do not have a cost. What is in question is what the cost is and who should pay it. The debate should be around what is going in the future to be the essence of a payments industry that is fundamental for the future of the economy: and on which e-commerce and the digital economy will rely.
Are you also worried that new technologies that have not yet been invented could avoid the regulation?
I am not against new players. On the contrary, we have made minority investments in new products (such as C-SAM the mobile wallet developer) that continue to be expanding the universe of payments.
So we are all for that: growing the pie helps us because if the pie grows, we grow. We are not against competition. We are against picking winners and loser. And someone saying: “MasterCard we won’t allow you to compete!” Why not? This is not a golf game where someone has a handicap, we are not playing golf where you have to give the other player 24 strokes, especially if that means the consumer gets a worse deal.
No one has yet said that we have market power. Since that is not the case why should we not be allowed to compete. Indeed we have dramatically reduced the cost of payments to retailers, and also enabled them to avoid opening new stores because they can expand online.