The European Commission initiated anti-trust proceedings against MasterCard Worldwide. A Statement of Objections (SO) issued July 9, 2015, highlighted concerns about MasterCard's cross-border acquiring and inter-regional fee structures and their impact on banks, retailers and consumers in the European Economic Area (EEA).
The EC noted that MasterCard's interchange fees "vary considerably" among European Union member states, and MasterCard rules restrict retailers from outsourcing acquiring to banks in countries with lower interchange rates. The commission asserted that this restriction violates anti-trust rules established by the European Union.
The EC also views MasterCard's relationships with issuing banks as a form of cartel in which competitors engage in anti-competitive practices such as price fixing. Article 101 of the Treaty on the Functioning of the European Union and Article 53 of the EEA Agreement prohibit this type of activity.
The EC's second concern relates to MasterCard's "inter-regional interchange fees" that acquiring banks pay for transactions that occur outside of their respective member states. For example, a European acquiring bank can pay up to five times its normal interchange rate "when a Chinese tourist uses his card to pay his restaurant bill in Brussels" compared to transactions on European-issued payment cards.
Millions of euros are spent each year on inter-regional fees. The EC is concerned that the high costs of these inter-regional fees could be passed to banks, retailers and "all consumers," including those who use European-issued cards outside of the European Union.
Brion Bonkowski, Managing Director of New York-based ROIPayments, said that MasterCard's interchange fees vary by member state in the EU because acquiring banks have different risk and cost structures associated with chargebacks and fraud, depending on where they are located.
"The reason inter-regional interchange fees are higher is because there is a higher likelihood of fraud on a card issued out of country," he said. "It is up to the acquirer to accept or reject cards and therefore take the risk in the transaction."
MasterCard acknowledged receipt of the EC's SO "in relation to payments made by cardholders from non EEA countries and with respect to MasterCard's rules on cross-border acquiring within the EEA." And the company is preparing a written response to the anti-trust proceedings.
"We will be formally responding to the SO and are also working with the European Commission on the issue as part of an ongoing constructive dialogue," the company stated, adding that it will continue to prioritize the needs of both consumers and merchants throughout the procedure. MasterCard said it also continues to encourage electronic payment acceptance both inside and outside of the EU.
MasterCard's counsel is reviewing documents in the EC's investigation file, and the company may request an oral hearing to defend its position. After the hearing, the EC will make a final decision and determine a course of action.
MasterCard also provided the following historical context for the current debate: "In 2007, the Commission issued a decision that prohibited MasterCard's cross-border interchange fees within the European Economic Area (EEA). In May 2012, the General Court rejected MasterCard's appeal against the decision. In September 2014, the European Court of Justice confirmed the General Court's decision.
"The European Commission announced on 9 April 2013 that it was launching a formal investigation into MasterCard's interchange fees with regard to payments made by cardholders from non-EEA countries in the EEA. In addition, the Commission announced that it would be investigating rules on 'cross-border acquiring' and other related business practices that may restrict competition."
"Many consumers use payment cards every day when they shop for food, clothes or purchase anything online," said European Commissioner Margrethe Vestager. "We currently suspect MasterCard is artificially raising the costs of card payments, which would harm consumers and retailers in the EU."
She went on to say that the EC is concerned about rules MasterCard applies to cross-border transactions and the fees retailers must pay to receive payments for MasterCard-branded payment cards issued outside of Europe.
Vestager has led a series of high-profile anti-trust actions since taking office in November 2014, including reviews of Google Inc., Amazon.com Inc. and Starbucks Corp. An investigation of Visa Inc.'s inter-regional interchange fees initiated in 2012 is reportedly still in progress.
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