The Serbian Commission for the Protection of Competition (“CPC”) has initiated proceedings against three foreign entities representing the MasterCard payment organization for an alleged restrictive practice involving interchange fees.
The CPC alleges that MasterCard’s practice of setting minimal multilateral interchange banking fees (“MIFs”) that are, according to the CPC, several times higher than in the European Union, restricts competition between banks by preventing them from freely setting the levels of the merchant fees charged to retailers. The CPC points out that such practices may not only affect consumers – if retailers decide to pass on the cost of the fees to them – but also have a negative bearing on competition in the payment cards issuing market.
Competition authorities across the globe have scrutinized banking fees, especially MIFs, on a vast scale over the past decade. The European Commission considered how MIFs limit competition in its Report on the Retail Banking Sector Inquiry. Although MIFs can be objectively justified to a certain extent, they can also restrict competition on several fronts (between issuing banks, between acquiring banks, as well as between payment card systems and other payment service providers).
The European Commission investigated MasterCard’s MIF practices on two previous occasions. The 2007 case ended up with the finding of an infringement and lead to the MasterCard’s lowering of MIFs. A second case initiated in 2013 is still pending. The European Commission has also investigated Visa for similar practices and two of the cases ended with Visa’s commitment to lower MIFs.
The case is especially important for several reasons.
It marks only the second time the CPC has initiated proceedings against a foreign legal entity for the conclusion of a restrictive agreement (the first case involved an investigation into an exclusive arrangement between a Polish company and its Serbian distributor). It is, however, the first time that all the parties under investigation are foreign legal entities.
This is one of the rare cases where the CPC is targeting a big global player (the other most notable case being the ongoing investigation of the tobacco market players). This indicates that the CPC might be ready to take on more complex cases against stronger “adversaries”, cases that are likely to have a bigger impact on the market and ultimately the welfare of consumers across the board.
This sort of case usually calls for a difficult balancing act. Firstly, there is the multifaceted nature of the payment cards system. And secondly, MIFs may be justified because they tend to remove the imbalance in costs borne by the issuing and acquiring banks and they ensure the payment card system functions more efficiently. Although the CPC is likely to rely on and draw conclusions from the broad comparative practice for MIFs, this is a case for itself and the CPC’s burden of proof might turn out to be high and is likely to require significant involvement from the CPC’s economic analysis department.