MasterCard Europe has announced the temporary
suspension of its European cross-border interchange fees to meet a
European Commission (EC) deadline.
In December 2007, the EC ruled that the
interchange fee, which typically makes up around 1 percent of a
credit card transaction, was illegal, and told MasterCard to stop
levying the charge. MasterCard appealed the decision in March 2008
and remains in talks with the EC in an attempt to reach an
agreement on an acceptable interchange methodology.
MasterCard Europe president Javier Perez said:
“We said in December that although we strongly disagree with the
European Commission’s decision, we would comply with it. At the
same time, we have solid legal arguments supporting our appeal of
the decision to the European Court of First Instance, and we will
continue to vigorously pursue that appeal. MasterCard’s policy is
to comply with all applicable decisions and regulations, but to
challenge them through appropriate channels when we believe that is
Although MasterCard has complied with the 21
June deadline, it emphasised this only applies to cross-border
consumer card interchange fees in the intra-European Economic Area.
The transactions affected amount to less than 5 percent of
MasterCard’s Europe volume, and Perez said he does not foresee any
short term financial impacts as a result. The future level of the
fees will depend on the result of continuing talks with the EC, and
the outcome of the appeal. Perez added MasterCard would not be at a
competitive disadvantage to rivals Visa because the EC had said it
would “apply the logic of the decision to all similar

Visa: business as usual

The EC also announced in March it would investigate
Visa Europe
’s interchange fees, concentrating on cross-border
interchange charges and the ‘honour-all-cards-rule’. The move came
after the expiry of an exemption agreement between the card
association and the EC dating back to 2002. The deal allowed Visa
to charge interchange fees, albeit at a reduced rate, in return for
immunity from prosecution. A Visa spokesman said talks with the EC
were ongoing and that it was “business as usual”. MasterCard’s
ruling did not directly impact Visa Europe, and it continues to
charge its cross-border interchange fee.

, the European trade association which campaigns on
behalf of European retailers, claimed victory following
MasterCard’s decision. It said the decision was a vindication of
the stance retailers had taken for many years: that the interchange
fee was unfair, not in the interests of consumers, and
anti-competitive. The group said national regulators needed to
extend the ruling to apply to interchange fees within Europe’s
individual countries, although that is considered unlikely until
MasterCard’s appeal case is decided.
EuroCommerce secretary general Xavier Durieu
said: “We have won a major battle but the campaign continues. This
decision by MasterCard affects only cross-border transactions.
Clearly, the bulk of transactions are at domestic level and we urge
national competition authorities to follow the clear precedent
given in the commission’s decision.”
But it is merchants, rather than consumers, who
are likely to be the winners of any strengthening of the laws
against MasterCard. The most frequently quoted example was of
Australia, where the
Reserve Bank of Australia
(RBA) reduced interchange fees to 0.5
percent in 2002 in an attempt to open up competition. It also
threatened a further cut in April, this time to 0.3 percent (see CI
399). A Cards International survey of Australia (CI 393) found
there was little evidence of reduced retail prices following the
RBA move. It led to less competition among card associations
because the domestic scheme, Bankcard, closed down as a result of
reduced transaction fee income. The caps on transaction fees also
led to higher card fees for customers and less generous loyalty
programmes. Several card issuers applied ATM fees to cash
withdrawals, overseas cash advances, foreign exchange conversion
fees and over-the-counter cash access fees.
Perez added: “MasterCard believes its
cross-border interchange system has kept the cost of payment cards
low for cardholders, and if left unchallenged the EC decision will
be bad news for European consumers.”