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The approach adopted by Visa Europe and the European Commission to reach a settlement over the maligned payment card fees departs significantly from the strategy of rival MasterCard and has led national regulators to put similar probes on hold. A related part of the commission's investigation – into card acceptance rules – may, however, not be blessed with such consensus.
The commission's announcement last week that it was opening a formal investigation into the cards association came as little surprise for Visa which knows that the desire for a settlement – shared by the commission – requires an open case as its basis. And its response that this was merely a “procedural step” combined with the sober tone of the commission's statements points towards a negotiated solution. Complications may, however, arise.
While MasterCard has maintained a firm belief that its cross-border 'interchange fees' – paid between a merchant's bank and consumer's bank to balance a card transaction – are not a restriction of competition, Visa has traditionally accepted some of the commission's concerns and in 2002 negotiated staged reductions in these fees with an exemption under Article 81(3).
The interplay of these two divergent approaches, as well as separate cases in member states and the commission's vision for a European payments area (SEPA), have not made talks – or indeed plotting an industry-wide solution – straightforward.
Today, Visa presented a new manifesto meant to play up its pro-consumer credentials, presumably in the hope that this will go some way to showing the commission that its system exhibits the kind of characteristics needed to gain clearance under 81(3), i.e. efficiencies and consumer benefits.
While Visa would not be drawn on the time-line of a possible settlement, June looms large on the horizon as the month when MasterCard is due to table its recalculated fee. The commission will want to avoid too much divergence between the networks and while Visa maintains the regulator will look at each system on its merits, Peter Ayliffe, CEO of Visa Europe, admitted there was a “slight issue” with what MasterCard was doing.
Despite the tone of conciliation with the commission, Ayliffe still “believes that the current level [of interchange] is justified through cost grounds.” That said, the commission would not have opened an investigation if it did not expect Visa's fees to drop further.
Although Visa is, in the words of its own CEO, “now trying to justify [the rate] through benefits”, the commission may expect it to be lower than the previous exemption. That waiver expired last year and committed the network to drop the weighted average rate to a level of 0.7 percent for deferred debit card and credit card payments. For debit card transactions, Visa committed to introduce a flat-rate of 0.28 euro.
So, the question remains: how low will – or can – Visa go? Either way, commission statements have opened the door for a solution, flagging up the full range of settlement possibilities available to the association, Articles 7 to 10. Some think that a binding settlement without a fine under Article 9 would be most likely.
National fee probes “on hold”
In announcing the investigation, the commission took the rare step of citing a clause in EU law which provides that “the initiation of proceedings relieves the competition authorities of the member states of their authority to apply the competition rules laid down [...] in the EC Treaty.” The clause also stops national courts from adopting divergent rulings.
It should apply in all such investigations, but does not in the past seem to have stopped a slew of national cases that have gone on over the years while the commission had similar proceedings open against MasterCard, and as long as it helped the commission's campaign against card fees to see parallel probes being conducted elsewhere.
During this time, national authorities have opened cases over card fees at will, sometimes adopting highly divergent decisions – such as in
But by choosing to invoke that clause now in a conspicuous reference in its press statement last week, the commission seems to be trying to rein in national authorities to stop a fragmented treatment of card fees across
Ayliffe admitted that “some” of the national cases against Visa had been “put on hold”, and that the regulators were being “pretty mature” over the issue.
At least, one national authority, however, has insisted that its own pending investigation focusses on domestic fees and is therefore unrelated to the commission's probe of cross-border charges. This may indicate a degree of independence from any attempt by the commission to impose itself on national cases.
The 'Honour-All-Cards' surprise
Despite the blip in the Visa-commission relationship last October – when Visa received an unexpected 10.2 million euro fine for restricting Morgan Stanley from its membership – the relationship seems to be back on track, with the right signals coming from both parties.
Nevertheless, a related part of the commission's investigation – into card acceptance rules, the so-called 'Honour-All-Cards' rule (HACR) – may not be blessed with such consensus.
The commission cleared this rule – which obliges merchants to accept all Visa-branded cards, irrespective of the transaction, issuer or type of card – in 2001, admitting that such no-discrimination rules restrict merchants' freedom, but adding that its abolition would not appreciably increase competition.
But the inclusion of HACR in the investigation announced last week surprised the company. While this may be simply a bargaining chip in the negotiations, Visa is more bullish, with Ayliffe suggesting that this is not currently under discussion with the regulators and it would be detrimental to consumers to abolish it.