Visa and MasterCard will be hoping that US lawmakers were not
paying attention to the latest interchange-related punishment that
has been meted out to the payment networks, this time in Hungary –
and not long after the networks incurred a similar fate in New
Zealand (see CI 428).

Visa, MasterCard and seven Hungarian banks have been hit with fines
totalling $10.42 million after the country’s Competition Authority
(GVH) concluded that the introduction of a uniform interchange fee
structure in 1996 inhibited, distorted and limited competition.
Visa and MasterCard were fined HFT477 million ($2.6 million) each,
while the commercial banks OTP, Budapest Bank, MKB Bank, CIB Bank,
Erste Bank, K&H Bank and ING Bank were fined a total of HFT954
million. The case relates to the setting of domestic interchange
levels in Hungary, and not cross-border interchange, which has also
roused the ire of national and pan-European regulators in recent

The case resulted from a formal investigation into MasterCard’s
interchange fees instigated by GVH in early 2008 – MasterCard is
the network brand accepted by the largest number of merchants in
Hungary, but
the investigation was also widened to include Visa.

Tihamer Toth, chairman of the GVH ruling panel, said that charging
merchants a uniform fee for card payments amounted to a
price-fixing cartel, but not surprisingly both networks have
announced their intentions to appeal the decision.

Visa issued a robust defence, saying in a statement: “During the
relevant period Visa did not set interchange in Hungary and we do
not consider there can be any credible legal basis for the finding
of an infringement against Visa Europe or the imposition of a fine.
We are confident that this decision will be overturned on appeal to
a higher court.”

Visa reiterated its view that interchange is a necessary component
to ensure a safe and convenient payment mechanism for consumers and
merchants alike.

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International pressure on interchange

However, the Hungarian case could represent a further tightening of
the noose around the necks of the payment networks, who are finding
it increasingly difficult to defend interchange as a wave of
populist consumer, merchant and political pressures converge to
attack the business model underpinning the four-party payment
scheme premise.

The recent capitulation by the networks to competition authorities
in New Zealand, and a mounting wave of anti-interchange momentum in
the US in recent weeks, has only served to highlight the fragile
defences being deployed by the networks which may now need to
change tack completely if they wish to preserve the status

Up until now, the networks’ defence of interchange has been based
around the security and convenience of cards to both consumers and
merchants. However, this relatively simplistic angle may now no
longer be fit for purpose. In the US, two separate proposed
interchange bills have been put forward by Congress judiciary
committee chairman John Conyers and Senator Richard Durbin, both of
which aim to enable merchants to negotiate interchange with card

According to Sanjay Sakhrani, an analyst at Keefe, Bruyette &
Woods, while there remains a risk on regulation of interchange
rates, it is unlikely that any decisions on rates will occur until
November, when the US Government Accountability Office (GAO)
publishes a study on interchange rates.

“There are already two other bills on regulating interchange that
have been proposed and it is unclear whether or not either is
gaining much traction among both houses. We would also note that
Visa and MasterCard do not make money directly from interchange
fees and a scenario where they would be impacted is more indirect
in nature (for example, lower volumes or inability to raise pricing
in the future), in our view,” Sakhrani said.

Hungary credit cards