European law report - A Visa for all borders
Following the recent decision taken by the European Commission to prohibit MasterCard's cross-border Multilateral Interchange Fees (better known as MIF), it seems to be Visa Europe's turn now to seek to justify such fees. The Commission has opened a...
Following the recent decision taken by the European Commission to prohibit MasterCard's cross-border Multilateral Interchange Fees (better known as MIF), it seems to be Visa Europe's turn now to seek to justify such fees.
The Commission has opened a formal anti-trust inquiry into the fees being currently imposed by Visa on card payments made across EU borders to establish whether such fees have been fixed at an unduly high level.
An MIF is a charge on each payment made by card at a retail outlet, retained by the customer's bank (the "issuing bank") and charged to the merchant's bank (the "acquiring bank"). The latter bank then takes this cost element on board in setting its prices to merchants. In turn, traders pass on such charges to consumers in the prices of their products so that both those clients using cards as well as those using cash actually bear such additional costs.
The Commission's intention is not to eliminate MIFs but simply to ensure that Visa's MIF is not in breach of the EC Treaty's competition rules. These rules prohibit price fixing and seek to ensure that there are clear benefits to consumers from business practices, or that such practices provide technical or economic progress.
Thus, for example, in MasterCard's case, the Commission prohibited MasterCard's MIF on the basis that it inflates the base on which acquiring banks charge prices to merchants for accepting payment cards, as the MIF accounts for a large part of the final price businesses pay for accepting MasterCard's payment cards. Such a restriction of price competition harms both businesses and their customers.
In its current inquiry, the Commission will also be focusing on the legality of the so-called Honour-All-Cards-Rule applied in connection with cross-border transactions. This rule refers to the obligation imposed by Visa on traders to universally accept all valid Visa-branded cards, irrespective of the identity of the issuer, the nature of the transaction and the type of card being issued. In this way, traders could potentially be forced to apply illegally fixed prices.
The tough stance being adopted by the Commission towards card companies imposing illegal fees on businesses and consumers alike should come as no surprise. The Single Euro Payments Area (SEPA) was recently launched with the promise to bring, among other benefits, price reductions for consumers and greater competition within the banking industry. Any business practice which stands in the way of the true realisation within Europe of such an area will be strongly condemned by the Commission and heavily fined.
Over 23 billion payments are made every year with payment cards, the overall value of which exceeds €1,350 billion. The impact that any anti-competitive practice within the card industry can have on the completion of SEPA is therefore surely not negligible.
• Dr Vella Cardona is a freelance consultant in EU, intellectual property and competition law. She is also a visiting lecturer at the University of Malta.
The Commission has opened a formal anti-trust inquiry into the fees being currently imposed by Visa on card payments made across EU borders to establish whether such fees have been fixed at an unduly high level.
An MIF is a charge on each payment made by card at a retail outlet, retained by the customer's bank (the "issuing bank") and charged to the merchant's bank (the "acquiring bank"). The latter bank then takes this cost element on board in setting its prices to merchants. In turn, traders pass on such charges to consumers in the prices of their products so that both those clients using cards as well as those using cash actually bear such additional costs.
The Commission's intention is not to eliminate MIFs but simply to ensure that Visa's MIF is not in breach of the EC Treaty's competition rules. These rules prohibit price fixing and seek to ensure that there are clear benefits to consumers from business practices, or that such practices provide technical or economic progress.
Thus, for example, in MasterCard's case, the Commission prohibited MasterCard's MIF on the basis that it inflates the base on which acquiring banks charge prices to merchants for accepting payment cards, as the MIF accounts for a large part of the final price businesses pay for accepting MasterCard's payment cards. Such a restriction of price competition harms both businesses and their customers.
In its current inquiry, the Commission will also be focusing on the legality of the so-called Honour-All-Cards-Rule applied in connection with cross-border transactions. This rule refers to the obligation imposed by Visa on traders to universally accept all valid Visa-branded cards, irrespective of the identity of the issuer, the nature of the transaction and the type of card being issued. In this way, traders could potentially be forced to apply illegally fixed prices.
The tough stance being adopted by the Commission towards card companies imposing illegal fees on businesses and consumers alike should come as no surprise. The Single Euro Payments Area (SEPA) was recently launched with the promise to bring, among other benefits, price reductions for consumers and greater competition within the banking industry. Any business practice which stands in the way of the true realisation within Europe of such an area will be strongly condemned by the Commission and heavily fined.
Over 23 billion payments are made every year with payment cards, the overall value of which exceeds €1,350 billion. The impact that any anti-competitive practice within the card industry can have on the completion of SEPA is therefore surely not negligible.
• Dr Vella Cardona is a freelance consultant in EU, intellectual property and competition law. She is also a visiting lecturer at the University of Malta.