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April 4, 2008

Visa Europe hit with EC antitrust investigation

The European Commission has launched an investigation into Visa Europes interchange fees three months after it ruled MasterCards cross-border fee was illegal. The EC, headed by commissioner Neelie Kroes, said it would investigate Visa Europes cross-border multilateral interchange fees (MIF) as well as its Honour-All-Cards-Rule. The decision to investigate Visa Europes MIF, a charge paid by a retailer to a consumers bank when a card payment is made, comes after the expiry at the turn of the year of an exemption agreement between the card association and the Commission, dating back to 2002. The EC allowed Visa to continue to administer interchange fees at a reduced rate, in exchange for immunity from prosecution. The Commission ruled in December 2007 that MasterCards cross-border MIF was illegal and gave it six months to withdraw the charge. MasterCard has since appealed. Given that turn of events, the Commissions decision to launch an investigation into Visa Europes similar, though lower, fee structure was a widely anticipated move. Hugh Stokes, Visas senior legal advisor, told CI: The Commission has had a focus on interchange for a long time. This was not a surprise it was something it was always going to do.

By Verdict Staff

The European Commission has launched an investigation into Visa Europe’s interchange fees – three months after it ruled MasterCard’s cross-border fee was illegal.
The EC, headed by commissioner Neelie Kroes, said it would investigate Visa Europe’s cross-border multilateral interchange fees (MIF) as well as its ‘Honour-All-Cards-Rule’. The decision to investigate Visa Europe’s MIF, a charge paid by a retailer to a consumer’s bank when a card payment is made, comes after the expiry at the turn of the year of an exemption agreement between the card association and the Commission, dating back to 2002. The EC allowed Visa to continue to administer interchange fees at a reduced rate, in exchange for immunity from prosecution.
The Commission ruled in December 2007 that MasterCard’s cross-border MIF was illegal and gave it six months to withdraw the charge. MasterCard has since appealed. Given that turn of events, the Commission’s decision to launch an investigation into Visa Europe’s similar, though lower, fee structure was a widely anticipated move. Hugh Stokes, Visa’s senior legal advisor, told CI: “The Commission has had a focus on interchange for a long time. This was not a surprise – it was something it was always going to do.”

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‘Honour-All-Cards-Rule’

The main difference between the MasterCard ruling and the forthcoming Visa investigation is the Commission’s focus on the ‘Honour-All-Cards-Rule’, which means merchants must accept all Visa cards regardless of the type used or the payment amount. It is controversial because merchants are charged different rates for accepting different types of cards within the Visa network but have to accept them all. MasterCard has effectively the same rule.

Stokes said: “The Commission has looked at this before and found no issue with the ‘Honour-All-Cards-Rule’. We think it is an important rule because it’s a good message for the consumer. They know their cards will be accepted and, if this was not the case, it would discourage card usage.”
But Rob Walker, former senior manager of the UK’s Switch card scheme (which has since migrated to MasterCard’s Maestro scheme), who has previously argued for interchange in an Office of Fair Trading enquiry, said he had found new evidence that suggests there is less justification for the fees in mature payment card markets.
He told CI: “I have yet to see understanding and convincing evidence that current interchange fee arrangements and levels of interchange fees are justified and that proves with reasonable certainty that they have the claimed positive effects.”
Walker, who runs Rob Walker Management Consultants, a specialist in payment systems and cards, added: “It has been proven in at least three separate studies, in the Netherlands, Belgium and Australia, that the resource cost of providing the payment service by credit cards is higher than for debit cards. Why should the credit cardholder get away with paying the same zero price for a credit card transaction when the cost to society is higher?”

Damaging implications

Francesco Burelli, cards and payments specialist at management consultants AT Kearney, said the ‘Honour-All-Cards-Rule’ investigation could have damaging implications for Visa and MasterCard, as it would enable European merchants to selectively refuse cards with higher charges.

He told CI: “Within economies that are largely dominated by cash, this would have negative effects on the migration from cash to electronic payments, and would damage consumers as it would ultimately result in less freedom to choose freely the preferred payment method. It would also discourage banks from incentivising retail POS spend by consumers – and facilitate the black economy that is so dependent on cash.”
Burelli added: “Despite all arguments brought forward by politicians, regulators and merchants, no interchange reduction has been to the advantage of consumers as the only beneficiaries are merchants. MIF reductions have not proven to be resulting in lower retail prices.” Visa Europe is now independent from Visa Inc after the latter’s flotation in the US.

Free Report
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How attractive are current investment opportunities in Europe?

Europe has been identified as one of the most favorable regions for investors, seeing high investment activity in the past year. Most of these investments have been through Debt Offering, valued at close to $700 billion. The region has provided attractive investments in a diverse set of companies. Companies who tend to major themes such Digital Media, Cloud, Artificial Intelligence, E-commerce, and Big Data are recording the highest number of deals, with Digital Media recording close to 2,000 deals. However, GlobalData’s whitepaper offers a full view of the market, analyzing less successful or attractive points of investment as well, examining statistics on Equity Offering investments and PE/VC deals. Understand how government agencies for economies around the world use GlobalData Explorer to:  
  • Track the M&A and Capital Raising volumes into their target market
  • Identify the top sectors in the target market attracting the investments
  • For any investment segment, identify the top Investors inside and outside the target economy that are already investing in the Segment
  • Assess and showcase the growth potential for various Industries in the target economy
Don’t miss out on key market insights that can help optimize your next investment – read the report now.
by GlobalData
Enter your details here to receive your free Report.

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