Dec 19
Antitrust: European Commission Prohibits MasterCard’s Intra-EEA Multilateral Interchange Fees
Brussels — Dec 19, `07 –The European Commission has decided that MasterCard’s Multilateral Interchange Fees (MIF) for cross-border payment card transactions with MasterCard and Maestro branded debit and consumer credit cards in the European Economic Area (EEA) violate EC Treaty rules on restrictive business practices (Article 81).
The Commission concluded that MasterCard’s MIF, a charge levied on each payment at a retail outlet when the payment is processed, inflated the cost of card acceptance by retailers without leading to proven efficiencies.
MasterCard has six months to comply with the Commission’s order to withdraw the fees. If MasterCard fails to comply, the Commission may impose daily penalty payments of 3.5% of its daily global turnover in the preceding business year.
MIF are not illegal as such. However, a MIF in an open payment card scheme such as MasterCard’s is only compatible with EU competition rules if it contributes to technical and economic progress and benefits consumers. In the EU, over 23 billion payments, exceeding a value of €1350 billion, are made every year with payment cards.
Why does MasterCard’s MIF restrict competition under EC Treaty rules on restrictive business practices (Article 81 (1))?
MasterCard’s MIF is a mechanism that restricts price competition between acquiring banks by artificially inflating the basis on which these banks set their charges to merchants. A MIF effectively determines a floor under the merchant service charge and merchants are unable to negotiate a price below it. This can considerably inflate the costs of payment card usage at merchant outlets to the detriment of merchants and their customers. For instance, the Commission estimates that MasterCard’s MIF accounted for more than 70% of the merchant service charges for credit cards in Belgium (2002) and for approximately 60% of these charges in Italy (2003).
If MasterCard operated without a MIF, merchants would pay lower prices for accepting cards and, as a consequence, their customers should also incur lower costs for shopping at a merchant’s.
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.”