29 August 2008

MLex: Visa's card fees under scrutiny as EC seeks answers from retailers

The Commission has sent out questionnaires to gather information on the payment card fees applied by Visa Europe. The questions focus on card usage, surcharging, commercial cards and retailers reaction. 

The European Commission has sent out questionnaires to merchants seeking information on the payment card fees applied by Visa Europe, in a sign that the antitrust investigation into the association opened in February is progressing. 

 

The questionnaires were sent out at the beginning of this month with a deadline for responses towards the end of August. They are understood to have been sent to merchants such as supermarkets, chain stores and electrical goods retailers.

 

The commission opened an antitrust investigation into Visa in March this year (here), looking into its cross-border 'interchange fees' - the charges between a customer's bank and a retailer's bank to balance a card transaction - suspecting the rates might contravene competition law. 

 

Visa had previously obtained an exemption from the commission but this expired at the end of last year and the association is currently in talks with DG Competition about how to set its rates. The commission says that its December 2007 decision against MasterCard – which ruled that company's fee illegal but left the door open for a recalculated fee – provides sufficient guidance for the company to set its charge in line with competition law. 

 

The commission's questionnaire looks into how competition functions between acquiring banks offering Visa cards, and more particularly into merchants' motivation when choosing to - or ceasing to - accept a particular card. 

 

Attention is paid to the levels of the 'merchant service charges' – the fee a retailer pays to its bank for processing cards, which is usually made up of a fixed subscription fee and a variable cost based on transactions. 

 

The commission looks into the relationship between the merchant service charge and the profits obtained on card sales and what services the retailer receives in return for the fee. It also floats the hypothetical situation of a 10 percent increase in the fees and whether that would lead a retailer to surcharge, switch card acceptance or establish of a minimum purchase amount, for example. 

 

Ultimately, retailers are asked what level of fee increase would lead them to stop accepting Visa cards and what level would make them indifferent to accepting either cash or cards.

 

Eurocommerce, the trade association bringing together Europe's retailers and wholesalers, has long campaigned against the fees and is the lead complainant against the payment cards companies. The group has called the fees “a tax on retailers and consumers”.

 

“It is EuroCommerce’s firm view that the interchange fee system operated by Visa Europe constitutes the same infringements of competition law which the commission already ruled against in the MasterCard case. We therefore trust that the commission’s investigation will lead to the same outcome and that Visa Europe will, in turn, be ordered to withdraw its interchange fee,” stated the company earlier this year.

 

DG Competition is also looking into the degree of knowledge merchants have of the card networks, asking about the mechanics of interchange fees as well as 'blended' fees – when a retailer is charged the same merchant fee irrespective of the different costs of card types.

 

When the commission opened its investigation into Visa, it decided to look beyond card fees and also address the 'Honour-All-Cards rule' which “obliges merchants to 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”, according to the commission.

 

DG Competition is seeking feedback from the market on this issue, asking if merchants would prefer to accept only certain cards rather than be obliged to accept all of them 

 

The acceptance of commercial cards – those used by companies for business expenses – is also raised by the commission in this context, not just with regard to Visa but also the likes of Amex, JCB and Diners. 

 

While Visa's previous exemption decision excluded commercial cards as did the commission's decision on MasterCard, the questionnaires pose a brief set of queries on whether merchants receive extra benefits for accepting such cards and whether it can choose to refuse them yet still accept consumer cards.

 

For its part, Visa Europe says it is continuing its discussions with the commission.

© MLex