30 November 2007

EC readies MasterCard card-fee decision for year-end

The Commission is in the final stages of preparing its long-awaited decision on MasterCard’s suspected abuse of payment card fees, with publication expected just before the Christmas break. Payments networks, retailers, banks and consumers are waiting to see if the decision succeeds in rewriting the rules for the cards industry as well as reducing shop-floor prices. 

The decision has had a complicated path through the commission’s own services, but a meeting of member state competition authorities has been slated for 13 December to review the decision before final publication by the commission, which is expected for 19 December – with the important proviso that there are no slippages in the meantime. 

While Competition Commissioner Neelie Kroes has publicly stated her intention to wrap up the case before year-end, her services are cutting it fine with 19 December being the last meeting of the College of Commissioners this year. Any delays in the meantime could push the decision into 2008 and further uncertainty. 

The antitrust investigation into one of the world’s two major payments networks concerns the setting of cross-border ‘interchange fees’: the fee charged between a shop’s bank and a cardholder’s bank to balance the transaction. 

These charges have long been in the cross-hairs of Europe’s competition authorities, from the commission’s own DG Competition at the top right down to national regulators in smaller member states. Retailers and consumers in the EU, the US and Australia have complained that the fees are agreed illegally between banks and the networks and lead to higher prices on the shop-floor. 

While MasterCard has announced to investors it is not anticipating a fine (since the measures were notified to the commission), the decision is expected to result in changes to the calculation method of such fees and a subsequent drop in their levels.

The interchange fee can cover factors as diverse as processing costs, risk management fees, marketing services and the cost of funds, some of which retailers don't think they should pay for. Indeed, some associations claim that retailers should only foot the bill for processing and guarantees against fraud. 

Conversely, banks and card networks argue that “nothing comes for free”, and if Europe wants more efficient payment services, they must be funded. They also warn that if the fees are capped or forcibly reduced – as was the case in a landmark decision by the Australian antitrust authority in the same matter – the cost-savings will not be passed on to consumers but rather end up in retailers' pockets.

In recent months, consumer groups, banks, retailers, card networks and even the European Central Bank have complained that delays over the commission's crucial decision on MasterCard are holding back investments vital for the construction of Europe's Single Payments Area (SEPA) – effectively a single payment's market to do justice to Europe's single currency. 

The hold-up is thought to have been due to friction between DG Competition and two other commission departments: the legal services and DG Internal Market, the department charged with financial services regulation. 

And while MasterCard sits and waits for the decision, the entire industry is watching. Retail associations such as Eurocommerce and the British Retail Consortium have been raising the volume in past weeks, preparing for the commission's verdict and pushing for a total ban on the fees. 

Europe's other card system, Visa Europe, is equally concerned by the outcome of the case which could impact its business practices for years to come. Its special exemption from antitrust investigation granted by the commission in 2002 expires at the end of this year. The same negotiated terms will roll over into 2008 but the association is hopeful that the decision will provide more certainty. 

Recently, the commission has been steeling itself ahead of the much-awaited MasterCard decision, concluding hard-hitting cases against French network Cartes Bancaires and Visa (in a membership dispute involving Morgan Stanley). Although the cases were only loosely related, they have been positioned as part of the quest to liberalise Europe's payment industry. 

But MasterCard has stated that an appeal to Europe's courts is likely, and the unpredictability of whether interim relief from the decision will be granted or not may signal that more uncertainty is to come.

By Lewis Crofts

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