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EU watchdogs take aim at MasterCard

09 July 2015  |  7739 views  |  15 card chip

EU anti-trust regulators have issued a formal 'Statement of Objections' against MasterCard, accusing the card scheme of using its rules to artificially inflate fees and of over-charging retailers for purchases made by non-EU cardholders.

The European Commission believes that MasterCard's rules prevent banks from offering lower interchange fees to retailers based in another Member State where charges may be higher. As a result, says the Commission, retailers cannot benefit from lower fees elsewhere and competition between banks cross-border may be restricted, in breach of European antitrust rules.

It also alleges that MasterCard's interchange fees for transactions in the EU using cards issued elsewhere in the world breach competition rules by setting an artificially high minimum price for processing these transactions.

Commissioner Margrethe Vestager, in charge of competition policy, says: "We currently suspect MasterCard is artificially raising the costs of card payments, which would harm consumers and retailers in the EU. We have concerns both in relation to the rules MasterCard applies to cross-border transactions within the EU, as well as the fees charged to retailers for receiving payments made with cards issued outside Europe. MasterCard now has an opportunity to respond to our charges".

In a statement, MasterCard says: "We will be formally responding to the statement of objections and are also working with the European Commission on the issue as part of an ongoing constructive dialogue."

It is the second time EU regulators have rounded on MasterCard. In September, the card scheme lost a seven-year battle with the European Commission over the validity of its interchange fees for cross-border card payments, following a decisive judgement at the EU's highest court.

If the Commission's preliminary view on the latest charge sheet is confirmed, it can impose a fine on MasterCard.

Comments: (15)

A Finextra member
A Finextra member | 09 July, 2015, 14:42

 "We currently suspect MasterCard is artificially raising the costs of card payments, which would harm consumers and retailers in the EU."

If there was no MasterCard (and Visa etc.) there would be no card payments.

Can't we sue the EU for "artificially raising" our taxes by having several hundred chocolate fireguards sat in Brussels/Strasbourg?

Can't we investigate their salaries/expenses etc and impose fines on them?

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Peter Robinson
Peter Robinson - Liberti Consulting - Northampton | 09 July, 2015, 14:55

Personally I think the European Commission are doing a great job in this regard.

If you turn the clock back a few years, you'd be right in that if there were no Mastercard or Visa there wouldn't be any card payments, however as with all monopolistic or duopolistic organisations, together they did a great job of stiffling competition - to the detriment of merchants and consumers. 

Don't get me wong, I believe the Card schemes still have a big role to play in card acceptance but it's also good to see new innovation and challenges to the status quo starting to come through too. Without the intervention of Brussels I don't think this would have happened.

Hats off to them ....

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A Finextra member
A Finextra member | 09 July, 2015, 15:20

I worked in the card payments Acquiring business for almost 30 years.

I became very familiar with the card scheme fees.

In the last few years, MasterCard was very aggressive about raising fees.   I told them they were heading for an EC inquiry.  

Agree with Peter, the EC is doing the right thing here.

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A Finextra member
A Finextra member | 09 July, 2015, 16:10

I'm not an expert on interchange but I don't believe for 1 minute that any intervention by the EU here is going to lead to lower prices in shops.

How are consumers going to be better off?

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Jim Wells
Jim Wells - Wellspring Consulting International - Fort Lauderdale | 09 July, 2015, 16:13

Agree with Peter & John. MasterCard appears to be running for the 'Slow Learner of the Decade' award by refusing to understand that the EU is serious in its efforts to combat card schemes' penchant for restricting competition and driving up the cost of the payments system with artificially-inflated charges that far exceed the costs for which they are supposedly assessed.  

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A Finextra member
A Finextra member | 09 July, 2015, 16:28

Re the comment on Interchange - my hot button.

Interchange and Card Scheme fees are two distinct costs to merchants.

Interchange is income to card Issuers - card schemes make not a penney off this.

The PSD 2 caps Interchange, which will cost EU Issuing banks "Billions".

The "theory" behind capping interchange was that the reduction would be passed on to merchants and in turn to consumers.  Won't happen and in fact the opposite will happen.  Banks will take a revenue hit, which they will need to make up - most likley by raising consumer banking fees.

This is what happened in the US as a result of the Durbin Amendment to the Dodd-Frank bill.

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Peter Robinson
Peter Robinson - Liberti Consulting - Northampton | 09 July, 2015, 16:41

Absolutely banks will take a hit. They've been raking it in for years now. Why should interchange fees be subsidising rewards that they offer to their customers? Just look at the introduction of 'Premium cards' which cost the merchants almost double the cost to accept over a standard consumer card. What benefits did the merchant get out of that?

In terms of recovering the lost revenue from customers? Well they could try raising consumer banking fees, but when they tried that in the USA didn't consumers simply start switching to a bank that didn't charge as much? That's called COMPETITION!

Retailers have been competing (strongly) for years. Many have failed and collapsed. Interchange fee reductions may not necessarily result in a direct cost reduction at retail point of sale. For example a 0.5% reduction in interchange fees for in a £1,000 TV would equate to a reduction of just £5 if passed on to the consumer. Would they notice that when retailers are regularly undercutting their competition by far more than that? No!

The interchange fee reductions will enable merchants to invest in their infrastructure, open more stores, stock wider ranges of products, innovate and COMPETE more aggressively. Consumers WILL benefit.

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A Finextra member
A Finextra member | 09 July, 2015, 22:56 Sorry, still not convinced that if Tesco can sell aTV for £5 less cost to them (not passed on to the consumer) that this equates to more stores and more innovation and any consumer benefit. Surely it equates to more profit for Tesco? if my local Tesco has spent more on its shelving or other infrastructure because of the extra £5 do I care? No. If I have 2 Tescos in my town do I care? Yes. 1 is enough. 12 types of pasta instead of 11, not bothered. Innovative trolley design? It seems to me to be an agenda masquerading as a benefit. Someone explain to me how I as a consumer benefit by this. Numbers not rhetoric. Thanks
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Jim Wells
Jim Wells - Wellspring Consulting International - Fort Lauderdale | 10 July, 2015, 00:30

At its most basic level, this is simply one more effort to force large global providers of financial services to be honest about their fees & charges and not to rig markets for their own benefit. 

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A Finextra member
A Finextra member | 10 July, 2015, 10:13

If there was no Visa, MC, Amex, CUP etc there would be no market 'to rig'.

 

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Mark Hirst
Mark Hirst - Thomas Cook Group PLC - London | 13 July, 2015, 10:31

Lots of interchange apologists still frequent these boards, I see. Shame they wish to remain 'anonymous'.

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Jim Wells
Jim Wells - Wellspring Consulting International - Fort Lauderdale | 13 July, 2015, 14:03

Agree with Mark.  These apologists prefer anonymity b/c as many governments have found, the maor card organizations charge a range of non-negotiable fees that greatly exceed the 'costs' for which they are supposed to represent which make the payments system more expensive than it needs to be - for all participants - which hinders competition. 

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A Finextra member
A Finextra member | 13 July, 2015, 15:27

Hmm - schemes charge fees that "greatly exceed"...

Wonder how much money anybody thinks a card scheme should get for processing a transaction?  

Bear in mind you can use your card pretty much anywhere in the developed world - pretty good utility.

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A Finextra member
A Finextra member | 13 July, 2015, 15:46

I'm not an apologist - I haven't apologised for anything!

Merely stated I don't believe that the EU caps will benefit consumers and I asked all of you wonderfully insightful with some proof that it will.

Still haven't received any, just rhetoric and now name calling from EU apologists....

 

Did consumers see any real benefit from Durbin? Wasn't the objective the same? I don't remember car prices or grocery bills dropping and people partying in the streets with their new found wealth.

 

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 15 July, 2015, 13:10

V/MC are not the only card networks. There are AmEx, JCB, Discover.

There are PSPs on noncard rails viz. Dwolla (ACH), Boku on MNO rails

Is it V / MC's fault that they lack V / MC's ubiquity? 

If V / MC's 2-3% is exorbitant, how is the 20% charged by Boku et al fair?

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