Summary
MasterCard's concessions on intra-EU interchange fees with the EC concedes the authority of the EC to regulate its and Visa's pricing practices. Although yesterday's concessions cover only about 5% of all EU interchange fees, it will be next to impossible for MCI to avoid further and broader concessions. In effect, MCI has conceded that its long held legal position is on shaky grounds. Proof of the pudding is that it has given up an estimated $2B in the fees at a time when the weakened banking system desperately needs every penny it can get. Perhaps it made a guess that governments will make up the shortfalls with taxpayer donations to the banks. But that's doubtful in light of the extreme and growing popular resentment of bank bailouts. In any case, MCI's surrender will severely weaken any defense Visa had in its arsenal. It will also weaken their collective defenses in the New York court. As such, it points the way toward a large settlement of the case within a year.
Analysis
Reducations of bankcard interchange fees are a nemisis for issuers and only secondarily for Visa and MCI. The latter two don't earn a cent of interchange revenues. They are at risk, however, if the reductions cause issuers to reduce credit availability, increase its cost to consumers and/or lose those customers. On the other hand, that risk is also a possible opportunity for increased business from those issuers and from retailers who might want to introduce Visa or MCI private label card programs to make up for their exposures. If the latter, bank issued Visa & MCI programs could be in for a long period of decline.
