Back in 2007, the European Union charged MasterCard with violating antitrust laws, saying that their interchange fees – the fees charged on every credit card transaction – were too high and hurt competition between banks. MasterCard lowered its charges to avoid steep penalty charges, but fought the ruling, launching an appeal which has only just worked its way through the European legal justice system.
The verdict? MasterCard loses again. The European Union`s second-highest court, The General Court in Luxembourg, upheld the original ruling, to the dismay of MasterCard Europe. Javier Perez, the president of MasterCard Europe, said that consumers will pay for the ruling with higher credit card fees. In an interview with European media, Perez said that “Even if the cost of making an electronic payment is generally cheaper than making a cash payment, there is still a cost,” and that if retailers aren`t paying it, customers will.
Fees? What Fees?
Interchange fees are charged by banks, with the card holder`s issuing bank charging the merchant`s bank a percentage of every transaction. They are charged by all credit card networks, including MasterCard, Visa, Discover, and American Express. Although the credit card network doesn`t profit from the interchange fee, they do provide an incentive for banks to issue their cards – meaning that the network will benefit from an uptick in business volume.
After the original ruling, MasterCard lowered the fees in question under threat of being charged a per-day penalty of 3.5 percent of sales, so there will be no immediate change in MasterCard`s fees. However, MasterCard`s Perez stressed that even in the face of this latest ruling, MasterCard has no intention of changing its fees. Their interim agreement with the European Commission runs out next year, but MasterCard plans to file another appeal.
Supporters and Naysayers
MasterCard is supported in their charging of these fees by large financial institutions such as Banco Santander SA and HSBC Holdings PLC, presumably because they are banks who benefit from higher interchange fees. By contrast, retail groups were happy with the decision, which they said would make payment systems throughout Europe more competitive. Christian Verschueren, Director General of EuroCommerce – a representative of retail, wholesale and international trade divisions – said, “We are delighted with this decision, which wholly vindicates retail`s ten year campaign against these anti-competitive fees. We now call on the Commission to follow this up with radical and decisive regulatory solutions to make payments in Europe truly competitive.”
Look Out, Visa
MasterCard isn`t the only company on the European Union`s list – the European Commission is looking at Visa, as well. The European Union`s competition chief, Joaquin Almunia, said that the case sets a precedent for his inquiry into Visa Europe`s fee structure and said that “The Commission invites Visa and MasterCard to consider carefully how to bring their multilateral interchange fees in the EU in line with competition rules.” Almunia considers bringing credit card transaction fees down to “acceptable levels” his personal crusade and plans to complete his probe on Visa in the near future.