EC Decides Not to Challenge MasterCard's Cross-Border Fees, For Now, and Then Issues a Statement of Objections to Visa

Update: Within days of its tentative deal withMasterCard, the EC issued a statement of objections to Visa, stating the Commission's tentative conclusion that Visa's unilaterally set multi-lateral interchange fees restrain competition without providing technological or economic benefits to consumers.

EU Competition Commissioner Neelie Kroes announced that the EC will not pursue MasterCard for failing to comply with a 2007 Commission decision that the card network's cross-border multilateral interchange fees constituted a restrictive business practice.

After repealing its cross border fees in June 2008, MasterCard increased other fees in October of that year, raising the Commission's concerns. Recently, however, MasterCard has agreed to implement a new fee methodology that is expected to substantially reduce average weighted cross-border interchange fee levels compared with those that the EC previously found to be in breach of EU antitrust rules.

Although Commissioner Kroes hailed the new methodology, arguing that "[t]his will mean lower charges for retailers accepting payment cards, which should in turn be passed on to consumers," some merchant representatives characterized the compromise as "appauling."

MasterCard's agreement was conditioned on the EC's decision not to pursue fines against it for failure to comply with the Commission's earlier decision. MasterCard also maintained that these lower fees are actually too low to support sustainable competition, and thus should be viewed as temporary while it continues to pursue its appeal of the Commission's 2007 decision in the European Court of First Instance.

For its part, the Commission cautioned that the EC will continue to monitor the implementation of the new methodology to ensure that it has the anticipated fee reducing effect. Commissioner Kroes also emphasized that the Commission would continue to investigate Visa, which currently has fees that are twice the level of MasterCard's new fees. "I have no intention," Kroes explained, of "allow[ing] Visa to benefit at the expense of MasterCard."

Interestingly, the Commission seems to be more interested in fee levels than it does with ensuring that fees are set competitively. Despite lowering their fees recently, MasterCard and Visa have maintained the long standing percentage based fee structure. EuroCommerce lobbiest Xavier Durieu contends that a truly competitive interchange fee could be less than a fixed €0.05 per transaction, substantially less than even MasterCard's new fees for all but the smallest transactions.

It will be interesting to see how, if at all, the EC's approach is cited in the on-going multi-district interchange fee litigation in the U.S.