As reported already, the European Commission may still take action against credit card company giant VISA Europe, even though it has reduced its charging structure on cross-border fees and only days after MasterCard agreed to
cap its cross-border fees and remove so-called ‘Scheme Fees’.
As explained many times on these pages, the Multilateral Interchange Fee (MIF) is a cross-border charge agreed between the card holder and the retailer's banks, which retailers must pay without any negotiation on either rate levels or coverage.
This latest Statement of Objections (SOO) outlines the Commission's preliminary view that Visa's MIFs harm competition between acquiring banks, inflate the cost of payment card acceptance for merchants and ultimately increase consumer prices. The SOO also concerns other system rules and practices such as the ‘honour all cards rule’, ‘no surcharge rule’ and blending of merchants fees, which hinder merchants' ability to manage their payment costs ‘…thereby increasing the restrictive effects of the MIFs…’ according to the Commission.
Visa recently announced new measures to try and avoid this investigation. These included a new cross-border 0.50% default fee for credit card transactions (0.20% lower than the existing fee) and a drop in debit card transactions to 0.15 euros. But the Commission say these measures are only a ‘step in the right direction’, rather than the solution.
MIFs, in themselves, are not illegal. But they are only compatible with European Anti-trust rules if they contribute to technical and economic progress that benefits consumers. This was at the heart of the Commission's case against MasterCard.
Meanwhile, in a further development, MasterCard has just agreed with Commissioner Neelie Kroes to remove ‘Scheme Fees’ in return for a more acceptable and competitive cross-border fee structure, which will be capped with a 0.3% maximum from July.
Although this agreement allows MasterCard to meet EU Anti-Trust rules, the announcement drew a mixed response from the FPA. Overall, the commitment to remove Scheme fees as well as the unbundling of MasterCard charges to make costs more transparent was welcomed. This would provide a much more competitive negotiating position for travel retailers.
But concerns were raised at the ad valorem percentage nature of the 0.3% cross-border fee, rather than a straight service cost option. Concerns were also voiced that the 0.3% could become the actual fee rate instead of the intended maximum ceiling. This resulted in the FPA calling for caution in negotiating any new contracts on this element. However members were confident this 0.3% fee would have to be revised down at the end of the year when the Commission announces proposals based on the expected results of a wider comparison study analysing card costs against the cost of cash.
Jacques Parson, who leads the Travel Retail FPA, said ‘The Commission's announcement on Visa is good news for travel retailers. It once again underlines the EU's commitment to competition, which is good for us and our customers. But the MasterCard announcement shows we cannot rest if we want a fairer payment framework with the card companies and banks.
‘I cannot pretend I am totally satisfied by the fee system the Commission agreed with MasterCard in return for the removal of the unfair scheme fees, even if it does include a 0.3% cap. I agree with our collaborators in EuroCommerce that ad valorem interchange fees, set as a percentage of the transaction value, can never be justified. Also, studies by banks themselves show that card schemes can be run profitably at a cost of just one euro cent per transaction?’