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 months.
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.
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 quo.
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 issuers.
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.