Visa Europe could have been forgiven for hoping
for a positive outcome in its tussle with the European Commission
(EC) over multilateral interchange fees (MIFs) in Europe, after an
uneasy truce was reached between the EC and MasterCard over the
same issue.


But the EC has now accused Visa Europe of
violating anti-trust rules over cross-border MIFs and is
threatening the payment network with punitive fines.

The EC’s decision is the culmination of a
battle that began in 2002 when an anti-trust agreement between the
EC and Visa Europe expired – that agreement saw Visa Europe
agreeing to reduce interchange fees in return for immunity from
legal action.

Reaching agreement

Following an investigation launched
by the EC in March 2008 over the matter, both sides have been
locked in negotiations, and in January 2009, Visa Europe CEO Peter
Ayliffe expressed optimism that an agreement with the EC would be
reached by the end of the year.

Ayliffe’s hopes would have been raised by the
1 April 2009 announcement that the EC and MasterCard had settled on
a compromise that will see MasterCard temporarily reducing its MIFs
while it pursues its appeal over the December 2007 decision by the
EC which found MasterCard’s MIFs to be illegal.

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MasterCard will set new interchange fees for
European Economic Area (EEA) cross-border consumer transactions
from 1 July 2009, which will not exceed 30 basis points for credit
cards and 20 basis points for debit cards.

MasterCard said that these transactions
account for less than five percent of MasterCard Europe’s total
volume, and that it does not anticipate any significant near-term
financial impact on the company.

MasterCard Europe had temporarily reduced
these fees to zero in June 2008 in order to ensure its conformity
with the EC’s December 2007 decision.

Visa Europe had already reduced interchange on
cross-border debit transactions to an average of €0.18 ($0.23) from
€0.28, while interchange for credit and deferred debit transactions
were reduced from 0.7 percent to an average of 0.61 percent.

However, in its statement, the EC noted that
in its view, these new measures were not sufficient to allay
concerns that Visa Europe’s MIFs restricted competition.

While the EC appears to have acknowledged the
role that MIFs play, something that MasterCard and Visa have both
long lobbied for, the payment networks will be less happy with the
disparity between what the EC sees as a viable interchange level,
and what the networks argue is needed to sustain a competitive and
efficient payment playing field.

While welcoming the EC’s long-awaited
recognition of the legitimacy of interchange fees and agreeing to
temporarily reduce its fees, MasterCard stressed that this was only
an interim measure while it pursues its appeal.

Instead of smoothing over disagreements over
interchange, the MasterCard-EC truce and now the new charges
against Visa Europe have only raised the question of whether the EC
will take a similar view regarding domestic card transactions,
given that European regulators are committed to making domestic and
cross-border card transaction costs equal.

If the EC were to take a similar view, the
implications for card industry business models and profitability
expectations would be profound, especially at a time when card
issuing banks are already facing their own profitability squeezes
(see Direct debit ruling could affect cards).


Cross-border debit

Visa Europe

Previous MIF level


New MIF level


MasterCard Europe

Previous MIF level*

between 0.40% and 0.75%

New MIF level


* MasterCard MIF was set to zero in June
2008 pending outcome of appeal

Source: CI, companies