MasterCard Appeals Europe Rate Ruling

  The European Commission in December sent a message to international card networks: Be careful what you charge merchants to accept your plastic. It could cost you.
  The commission on Dec. 19 ruled MasterCard Worldwide’s “multilateral interchange” rates violate European antitrust rules. It gave the card network six months to reduce the rates or face daily fines of 3.5% of daily global revenues.
  The rates apply to MasterCard’s credit and Maestro debit payments made outside cardholders’ home countries and for domestic payments in Belgium, Ireland, Italy, the Czech Republic, Latvia, Luxembourg, Malta and Greece.
  The rates “inflated the cost of card acceptance by retailers without leading to any advantage for consumers or retailers,” Neelie Kroes, the European commissioner for competition, said in a statement.
  MasterCard said in a statement it will comply with the ruling while it appeals the decision to the European Court of First Instance.
  â€œMarket forces, not regulation, should drive key decisions such as the setting of interchange (rates) and retailers’ choices over which forms of payment to accept,” the statement says.
  The decision, Kroes said, “does not mean all (multilateral interchange rates) are illegal.” MasterCard Europe sets its rate at more than 0.5% for debit and more than 1% for credit cards, Kroes said.
  During a conference call Dec. 19, Javier Perez, MasterCard Europe president, said the commission’s decision “does not provide the payment industry with clarity about what interchange fees the commission would allow.”
  Visa Europe, whose antitrust exemption for multilateral interchange rates was set to expire Dec. 31, also faces scrutiny from European regulators.
  Kroes called the rates a “tax on consumption” and a way to the make customers “risk paying twice for payment cards,” the first method being annual fees and the second being the higher prices merchants charge to cover their interchange costs contained in the discount rate.
  In a statement, Visa Europe said it sees “no evidence that Visa Europe’s interchange has acted as a tax on consumption or has caused consumers to pay twice.”
  Gwenn Bézard, research director for U.S.-based Aite Group LLC, says the commission’s decision on MasterCard’s rates “spells trouble for both Visa and MasterCard, but I’d say probably even more for Visa because in its previous deal it has de facto recognized that there was something wrong with the interchange (because) it agreed to reduce it.”
  Bézard says the decision could impede the ambition behind the Single Euro Payments Area, a cross-border payment scheme that was scheduled to begin Jan. 1. “In effect, it creates a disincentive for banks to embrace pan-European networks,” he says.
  The ruling won praise from EuroCommerce, a Belgium-based industry group for retailers. A reduction in interchange likely would drive more small and medium-sized businesses to accept cards, says Xavier Durieu, the group’s CEO.
  The National Retail Federation, which represents U.S. retailers, expressed a similar view.
  â€œEuropean authorities say MasterCard is double-dipping in Europe, and that’s exactly what we think both MasterCard and Visa are doing here in the U.S.,” Mallory Duncan, the federation’s general counsel, said in a statement. “These fees drive up the cost of merchandise for shoppers while delivering little, if any, benefit commensurate with the billions charged.”
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