On 9 July, the European Commission (the Commission) formally charged MasterCard, with alleged infringements of European Union competition law, by sending it a Statement of Objections (SO). The Commission is charging it under Article 101(1) of the Treaty on the Functioning of the European Union, which prohibits anti-competitive agreements. 

The Commission has taken the preliminary view that MasterCard and the financial institutions that issue MasterCard branded cards to cardholders, or process transactions with those cards for retailers, form an association of undertakings.  The victory the Commission achieved in the European Court of Justice last year[1], which concluded that MasterCard and the banks together formed an ‘association of undertakings’, will no doubt give the Commission confidence in taking this approach.

The Commission’s concerns

The Commission has two specific concerns, which form the subject matter of the SO:

  1. MasterCard’s rules on cross-border acquiring; and
  2. The levels of MasterCard’s inter-regional interchange fees.

Cross border acquiring 

The Commission claims that MasterCard’s rules on cross-border acquiring prevent banks offering lower interchange fees to retailers from other Member States for services to receive card payments. 

Consider a hypothetical example of a retailer in Belgium that typically uses a Belgian bank to provide banking services.  The Commission contends that in this example, even if a French bank were to offer lower interchange fee rates than the Belgian bank, the MasterCard cross-border acquiring rule would prevent the Belgian retailer from using the French bank. The Commission argues that these rules restrict the ability of banks to compete between Member States for the business of retailers resulting in consumers paying higher prices.

The Commission has already addressed this issue with Visa Europe. In 2014 Visa Europe entered into legally binding commitments which addressed a number of issues including a specific commitment to amend its rules on cross-border acquiring from 1 January 2015. Visa Europe committed to allowing cross-border acquirers to offer either the domestic debit or domestic credit multilateral interchange fee (‘MIF’) in the location of the merchant, or a MIF of 0.2% for consumer debit transactions and 0.3% for consumer credit transactions. The Commission’s current investigation should therefore bring MasterCard into line with Visa Europe’s on this issue.

Inter-regional interchange fees

The second charge relates to inter-regional interchange fees. These are the fees that acquiring banks (the banks that act for merchants) pay for transactions made in the EU with MasterCard cards issued outside the EU.  An example of this would be, where a US resident visiting Europe uses his/her MasterCard (issued by a US bank) to purchase goods from a European retailer.  In these circumstances an inter-regional interchange fee would be levied on the retailer’s bank. Such fees are then passed on to the retailer.  According to the Commission, inter-regional fees can be up to five times higher than the fees paid where the card is issued in the EU. 

The focus on cards outside the European Union may raise questions about the Commission’s right to intervene in relation to the level of fees charged by non-European card providers - the Commission therefore appears to be testing the boundaries of its jurisdiction. The Commission contends that because inter-regional interchange fees are paid by European retailers, the prices for both European and non-European consumers using these businesses may be higher than they would otherwise be, even where they are paying by cash. This is because retailers usually pass these fees on to consumers through higher prices for their goods or services. 

The Commission’s investigation into Visa’s US arm (Visa Inc.) in relation to its inter-regional interchange fees is ongoing.

Regulatory scrutiny in the cards sector

The Commission’s current proceedings against MasterCard, which began in April 2013,  form part of wider series of investigations and measures concerning interchange fees over the past decade or so.

As a result of action taken by the Commission in December 2007 against MasterCard, both Visa and MasterCard capped the interchange fees they charge for intra-EEA cross-border transactions. 

In addition, the EU has recently passed legislation capping interchange fees charged by card companies within the EU from December 2015 for cross-border and domestic transactions to 0.2% of the value of the transaction for debit cards and 0.3% for credit cards for intra-European transactions (see our briefings on the Interchange Fee Regulation and the timeline for coming into force).  The effect of the Regulation will be to harmonise interchange fees across the EU.

Domestic interchange fees have been the subject of scrutiny by several national competition authorities in the past, including the UK’s Competition and Markets Authority. In May this year, the CMA decided to close its investigations into Visa and MasterCard on grounds of administrative priority.

The current Commission investigation addresses elements of the interchange fees that have not to date been the subject of formal decision by the Commission and which do not fall within the new legislation.

Next Steps

The SO is a statement of the Commission’s case and is not a decision.  MasterCard is now able to prepare a response and may request an oral hearing.  After considering MasterCard’s response, the Commission will publish its final decision. If the Commission concludes there has been an infringement and MasterCard doesn’t make changes voluntarily to address the Commission’s concerns, the Commission has the power to impose fines on MasterCard of up to 10% of its group world-wide turnover.