MasterCard Appeals European Commision Ruling to Avoid Losing Market Share & Cross-Border Volume In Interchange Fees

Implications: MasterCard Europe filed an appeal of the European Commission's (EC) ruling that its non-negotiable interchange fees for cross-border transactions violated EC Treaty regulations. The EC's investigation found that interchange fees MasterCard charges on cross-border Maestro and MasterCard transactions violate European Union rules of fair competition and the fees didn't provide any efficiencies to the consumer or the economy. Roughly 45% of European payments cards carry the MasterCard or Maestro logo and MasterCard's full year cross-border volumes increased by 21.1% in 2007 and processed transactions increased by 16.2% to $18.8 billion and gross dollar volume growth increased by 14.4% to $2.3 trillion. With the potential loss of cross-border transaction volume and a loss in market share, MasterCard couldn't afford to let the European Commission's ruling stand without challenging the ruling. If the EC's ruling stands on appeal, European consumers could save about $14 billion annually.

Analysis: In December 2007, after a four year investigation into MasterCard Europe's multi-lateral interchange fees (MIF) by the European Commission Competition Commission, the European Commission (EC) determined that the interchange fees MasterCard charges on its MasterCard credit cards and Maestro debit cards for cross-border transactions violates EC Treaty regulations and because the fees does not provide any efficiencies for the consumer or the economy, MasterCard has six months to stop charging the fees or face daily penalties.

1.  Apparently, during the four year investigation by the EC, MasterCard failed to submit the required evidence to demonstrate any positive effects on innovation and efficiency that would allow passing on a fair share of the multi-lateral interchange fees (MIF) benefits to consumers

2.  Visa Europe is watching this case closely because the European Commission's Competition Commission is reinvestigating Visa's January 2007 fee structure to determine if Visa Europe interchange fees for cross-border transactions have violated any EC Treaty regulations. Prior to 12.31.07, Visa had negotiated an "antitrust exemption" agreement with the EC Competition Commission and agreed to reduce levels of interchange fees for processing card transactions in exchange for immunity from legal action, however, that "exemption" ended on 12.31.07

Takeaway:  European consumers and merchants are cheering over the European Commission's ruling against MasterCard Europe's cross-border interchange fees on transactions and the U.S. is also pushing for legislation in an attempt to stop MasterCard and Visa from charging interchange fees that are passed on to the merchants and their consumers, whether you pay for purchases with your credit or debit card or if you pay in cash, MasterCard and Visa has restricted its member merchants from disclosing the fees they charge in interchange that is ultimately passed on to consumers. The House Judiciary Committee introduced antitrust legislation on 3.6.08 under the "Credit Card Fair Fee Act," which could save consumers as much as $40 billion annually.