On 9 July 2015 the European Commission sent a Statement of Objections (the “Statement”) to MasterCard, the culmination of an investigation originally opened in April 2013. The Statement set out the Commission’s preliminary view that MasterCard is artificially raising the cost of card payments and that its approach to fee setting stifles competition in breach of European anti-trust rules.
The issuing of the Statement is the latest in a series of previous actions on interchange fees:
- In 2007, the Commission found that MasterCard’s interchange fees on cross-border transactions within the EEA restricted competition between banks (a finding confirmed by the Court of Justice in 2014);
- In December 2010 and February 2014 the Commission also adopted decisions making legally binding commitments offered by Visa Europe to cap the interchange fees set in the EEA for debit cards and credit cards; and
- A similar investigation into Visa Inc.’s inter-regional interchange fees is currently ongoing.
The Commission has expressed concern that MasterCard’s rules relating to interchange fees prevent competition and are, in some cases, unjustified. In particular, the Statement outlines two main issues:
- First, that MasterCard’s rules prevent retailers in one EEA country from benefitting from lower interchange fees offered by an acquiring bank located in another (“cross-border acquiring“). Given that interchange fees still vary considerably within the EEA, the concern is that MasterCard’s rules on cross-border acquiring limit the ability of banks to compete cross-border on price for services to receive card payments. According to the Commission, this restricts competition and leads to higher prices for retailers and consumers.
- Secondly, that the levels of MasterCard’s “inter-regional interchange fees” are unjustifiably high. These are the fees paid by an acquiring bank when a non-EU tourist, for example, uses a card to pay a bill in the EU. These fees can be up to five times higher than those paid when a consumer uses a card issued in Europe. The concern is that these high inter-regional fees increase prices for retailers with a knock-on rise in prices for all consumers, and not only those using cards issued outside the EU or even paying with cards.
In addition to the above, the Commission explains that, in its view, the practices outlined in the Statement violate EU and EEA rules that prohibit cartels and other anticompetitive business practices.
What happens next?
A Statement is a formal step in Commission antitrust investigations informing parties of the ‘case’ raised against them. The recipient can reply in writing and may also request an oral hearing to present comments on the case. The Commission may then take a decision on whether the conduct set out in a Statement is in breach of antitrust rules. If the Commission’s preliminary view is confirmed, it can impose a fine on MasterCard.
There is no legal deadline to complete inquiries into anti-competitive conduct. The duration of an antitrust investigation depends on a number of factors, including the complexity of the case, the extent to which the undertaking concerned cooperates with the Commission and the exercise of the rights of defence.
Interaction with Interchange Fee Regulation
In an attempt to address the issue of interchange fees, the EU adopted the Interchange Fee Regulation, which from December 2015 will cap interchange fees for cards issued and used in Europe at a maximum of 0.20% for debit cards and 0.30% for credit cards. The Interchange Fee Regulation was considered in the previous Payments Law Update. The UK government has recently launched a consultation on the implementation of the Interchange Fee Regulation and in particular seeks views on exercising the national discretions the Regulation affords to member states. This consultation is considered in more detail in the next article.
It should be borne in mind however, that the caps set under the Interchange Fee Regulation do not apply to inter-regional transactions, one of the two issues of the current MasterCard investigation. The reduction in interchange fees in the EU has been pursued partly as a means of increasing competition and innovation in the payments sector. On the other hand, some industry commentators have pointed out that the comparatively low EU fees could potentially reduce the commercial opportunity for payment operators like Apple Pay when judged against the US market.