By Robert B. Barnett Jr., J.D.
After the European Commission opened an antitrust investigation into whether the fees charged on inter-regional transactions (purchases of European products with credit cards issued outside of Europe) were excessive, MasterCard and Visa have agreed to cap their fees at the rate European credit card issuers charge for European transactions, which is expected to reduce fees for retailers on inter-regional transactions by 40%.
The European Commission has accepted commitments from MasterCard and Visa to cut their inter-regional interchange fees by around 40%. The fees are payments made in the European Economic Area with consumer debit or credit cards issued outside the European Economic Area, such when a U.S. tourist uses a Visa or MasterCard issued in the U.S. to visit the Louvre. The offer that the European Commission accepted follows on the heels of significant fines that the European Union had levied for breach of European antitrust rules.
This agreement, said Commissioner Margrethe Vestager, "will lead to lower prices for European retailers to do business, ultimately to the benefit of all consumers."
Exchange fees explained. When a consumer uses a debit or credit card in a typical transaction, whether in a brick-and-mortar business or online, the retailer’s bank pays a fee called a "multilateral interchange fee" (MIF) to the cardholder’s bank. The retailer’s bank passes this fee to the retailer, who passes it along to the consumers as part of the final price, even for those consumers who do not use credit cards. The inter-regional interchange fee, a type of MIF, is the fee placed on transactions made in places where the credit card was issued elsewhere. MasterCard and Visa set the level of MIFs, including the inter-regional MIFs. Retailers and consumers have no control over how those fees are established.
Commission intervention. The European Commission has a history of going after credit card companies for excessive fees. In 2007, the Commission found that MasterCard’s interchange fees on cross-border transactions in Europe (i.e., a cross-border transaction between a Dutch consumer and a French retailer) restricted competition between banks. In 2009, MasterCard reduced its fee for those transactions to 0.2% for debit cards and 0.3% for credit cards to comply with the ruling. The Commission then became the first competition authority in the world to intervene on credit transactions involving cards issued outside of Europe when it opened a formal antitrust investigation against MasterCard to assess whether MasterCard’s rules on cross-border acquiring were in breach of EU antitrust rules. The Commission issued a Statement of Objection to MasterCard in 2015 and to Visa in 2017. Earlier this year, the Commission fined MasterCard the equivalent of $648 million US for breaching European antitrust rules by setting an artificially high minimum price for processing these transactions.
Credit card commitments. Under the commitments that the Commission has agreed to accept, MasterCard and Visa have promised to (1) reduce the fee for brick-and-mortar purchases to 0.2% of the value for debit cards and 0.3% of the value for credit cards, (2) reduce the fee for online purchases to 1.15% of the value for debit cards and 1.5% of the value for credit cards, (3) refrain from circumventing these caps, and (4) publish all inter-regional fees covered by this commitment in a "clearly visible manner on their respective websites." The commitments, which will apply for 66 months to transactions involving MasterCard, Maestro, Visa, Visa Electron, and V-PAY cards, are expected to reduce the inter-regional MIFs by an average of 40%.
Regulatory history. In 2015, the European Parliament adopted the Interchange Fee Regulation, which capped interchange fees for cards both issued and used in Europe at 0.2% for debit cards and 0.3% for credit cards. The Regulation did not apply to inter-regional transactions because the Parliament has no authority over cards issued outside of Europe. As a result, this commitment brings the inter-regional fees in line with the fee limits established under the Interchange Fee Regulation.
Companies: MasterCard Inc.; Visa, Inc.
MainStory: TopStory Antitrust
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