The move follows last year's decision to suspend fees on cross-border transactions in order to comply with an EC ruling and avoid heavy daily penalties.

MasterCard says the new fees - capped at 0.3% for credit cards and 0.2% for debit cards - will be introduced in July, pending a legal appeal against the Commission's original ruling.

Previously, MasterCard fees ranged from between 0.4% to a maximum 1.9%.

Javier Perez, president, MasterCard Europe, says: "We do not believe this level of interchange is adequate to sustain strong competition in the European payments industry or to encourage the investment and innovation that will be required to provide European consumers and merchants with better payment products in the future.

"That is why these rates are only interim, and why we are pursuing our appeal in the European Court of First Instance of the European Commission's December 2007 decision. We believe we have strong arguments that the decision should be reversed."

EU competition commissioner Neelie Kroes says a probe into Visa's interchange fee structure will continue.

"Some have wrongly interpreted our [December] 2007 Decision as prohibiting all MIFs, but I want to make crystal clear today that under certain circumstances, reasonable MIFs can be compatible with the competition rules," she says. "I have no intention that today's announcement will allow Visa to benefit at the expense of MasterCard - we are determined to keep a level playing field in these markets."

MasterCard says the cross-border deal affects less than five per cent of its total billed volume.

However, analysts at Lafferty point out that the EC is committed to eliminating cost differences between cross-border and domestic transactions under the Single Euro Payments Area (Sepa).

"The agreement on the new MasterCard MIFs may indicate the level at which they are also comfortable regarding domestic transactions," states Lafferty. "If the 'acceptable' cross-border MIF was applied to 2008 figures for all credit card transactions within Sepa, the issuing industry would stand to lose €2.6 billion in interchange revenue."

Finextra verdict: Neelie Kroes has accepted that some minimum level of interchange may be acceptable under EU competition rules. MasterCard can afford to take the hit on cross-border payments, which account for only five per cent of its revenue, but an extension of the cap to all domestic transactions could remove €2.6 billion from the industry's bottomline. This explains MasterCard's ongoing determination to challenge the legal basis of the Commission's ruling. To do otherwise would create a worrying legal precedent with potentially devastating fiscal consequences further down the line.