MasterCard’s decision to cut cross-border Multilateral Interchange Fees

European Commissioner for Competition Neelie Kroes has indicated that, on the basis of information currently available, she sees no need to pursue MasterCard for non-compliance with a 2007 Commission decision that MasterCard's cross-border multilateral interchange fees (MIF) were in breach of EC Treaty rules on restrictive business practices.

Neelie Kroes said: "I am satisfied that these undertakings will not only improve the efficiency and transparency of the MasterCard payment card scheme but also provide a fair share of the benefits to consumers and retailers. The new methodology for calculating the MIF will help to bring clarity for banks and retailers and also lead to a substantial reduction in comparison to MasterCard's previous MIF. We will be monitoring implementation closely in the coming months."

The Commission decided in December 2007 that the MIF established by MasterCard for cross-border transactions made with MasterCard and Maestro branded debit and consumer credit cards, did not comply with EC Treaty rules. Nevertheless, the decision did not exclude the possibility that a MIF might be compatible with EC antitrust rules if it had positive effects on innovation and efficiency and allowed a fair share of these benefits to be passed on to consumers. The Decision gave MasterCard six months (until 21 June 2008) to adjust its behaviour to comply with the antitrust rules with the  possibility of imposing penalty payments for any delays in the implementation of the Decision. On 12 June 2008, MasterCard provisionally repealed its cross-border MIF, while continuing to engage in discussions on a methodology to determine MIFs where consumers and retailers would enjoy a fair share of the benefits.

MasterCard has now given three undertakings:

First, MasterCard will, as of July 2009, calculate the cross-border MIF according to a methodology which ensures that MIFs reflect the transactional benefits to merchants of accepting payment cards as opposed to cash. The calculation of a MIF on the basis of this methodology will lead to a substantially reduced maximum weighted average MIF level: 0.30% per transaction for consumer credit cards and 0.20% per transaction for consumer debit cards. For comparison, depending on the card, MasterCard's cross-border MIFs ranged from 0.80% to 1.90% in 2007. Maestro cross-border MIFs ranged from more than 0.40% to more than 0.75%).

Second, MasterCard will, as of July 2009, repeal the scheme fee increases it announced in October 2008 (see below).

Third, MasterCard will, as of July 2009, adopt certain measures enhancing the transparency of its scheme which will allow consumers and merchants to make better informed choices about the means of payment they use and accept. For example, MasterCard's rules will be changed so that merchants are offered and invoiced distinct rates according to the type of card that is used, i.e. they will be offered so-called 'unblended' rates.

In October 2008 MasterCard revised its acquirer pricing structure in the EEA, which included increasing certain existing acquirer fees (charged by a payment card scheme, in this case MasterCard, vis-à-vis its member banks in the framework of their adherence to the scheme), introducing a new fee on acquirers, and repealing certain acquirer fee waivers. However, these fees will now be repealed.

In view of the changes to be made by MasterCard to its MIFs, its agreement to repeal the scheme fee increases and on the basis of the information currently available about these markets, Commissioner Kroes does not intend to propose to the Commission to pursue MasterCard either for non-compliance with the Commission's 2007 decision, or for infringing the antitrust rules by increasing its scheme fees or by reintroducing a cross-border MIF.

As regards Visa's behaviour on the payment cards market, the Commission will continue its antitrust investigation and will monitor the behaviour of other market players to ensure that competition is effective in this market to the benefit of merchants and consumers.

GRTU and our European Counterparts, EuroCommerce, is very disappointed at the weak compromise announced by the Commission on MasterCard interchange fees.

The decision to allow MasterCard to continue charging retailers and consumers a percentage fee on each card transaction is wholly unjustified and ill-conceived. Likewise, the setting of different rates for credit and debit cards has no basis in market reality. Both types of transaction require the same processing; therefore they should attract the same cost. This cost, according to studies done by the banks themselves, is less than one euro cent per transaction.

"We are appalled at the failure to abolish the ad valorem interchange rate," said Xavier Durieu, EuroCommerce Secretary General. "At a time when consumers are fighting to keep their heads above water, this lacklustre compromise sets a very bad precedent for this tax on payments at national level."

Further, the decision does not address the honour all cards rule, or deal with commercial cards which attract much higher interchange rates than consumer credit cards. Retailers are very concerned that banks will step up their push to switch consumers to commercial cards.

We can only hope that once the Commission has completed its costs study and has fully taken into account data from retailers, these calculations will be revised.