EU Accepts Visa Interchange Fee Caps

By Aymeric Dumas-Eymard

Visa has just closed a chapter of its antitrust woes in the European Union.

On February 26, 2014, the European Commission announced that it had rendered legally binding the commitments offered by Visa Europe to cap its yearly weighted average Multilateral Interchange Fees (MIFs) for consumer credit card transactions at a level of 0.3% of the value of the transaction.  The cap will apply with immediate effect to cross-border credit transactions within the EEA (i.e., where the issuer and the acquirer are in different EEA countries) and with a two-year delay to domestic credit card transactions in certain EEA countries.

Visa offered these commitments to resolve proceedings opened by the European Commission in 2008 with respect to both debit and credit card cards.  In 2010, the Commission accepted Visa’s commitment to cap its debit card MIFs at 0.20% of transaction value.  However the investigation continued with respect to credit card transactions.  The Commission issued a supplementary Statement of Objections in July 2012, setting forth its continuing concerns with Visa’s practices in the credit card space and, in particular, the level of its interchange fees.

The MIFs at issue are interchange fees set by Visa, as opposed to bilateral interchange fees that are negotiated between one issuing bank and one acquiring bank.  According to the Commission, MIFs restrict price competition between acquiring banks by artificially inflating the basis on which these banks set their service charges to merchants. MIFs effectively become a price floor for the merchant charges that leaves merchants largely unable to negotiate a lower price.  This in turn drives up the costs of payment card usage at merchant outlets to the detriment of merchants and, ultimately, consumers to whom these costs are passed on.  This analysis of the anticompetitive harm of MIFs was validated by the EU General Court in its May 2012 decision MasterCard v. Commission, which upheld a European Commission decision finding MasterCard’s MIFs violated EU Competition Law (although this judgment is being appealed to the European Court of Justice).

The fee cap proposed by Visa will result in fees being reduced by an estimated 40 to 60%.  The Commission appears satisfied that the cap is an adequate remedy for the harm caused by Visa’s MIFs to European merchants and consumers, at least for the four-year period during which it will be in effect.

However, the Commission is also working on more long-term and widespread relief for merchants and consumers. In July 2013, it adopted a proposed Regulation on Interchange Fees for Card-Based Payment Transactions intended to significantly and permanently reduce interchange fees in order to stimulate competition in the acquiring market, reduce merchants’ costs, and cut consumer prices.  The Regulation is currently before the European Parliament.

Based on the current draft of the Regulation, it would cap payment card networks’ per transaction interchange fees at 7 euro cents, or 0.2% of the transaction value, whichever is lower, for debit card transactions, and 0.3% for credit card transactions.  These caps would apply to both cross-border and domestic transactions in the EU and would take effect one year after the Regulation is adopted.

Visa’s acceptance of interchange fee caps that mirror those proposed by the new Regulation are likely to undermine MasterCard’s campaign against the Regulation. While MasterCard has agreed to similar caps in its commitments to the Commission, it has also continued to appeal the May 2012 decision, and waged an aggressive lobbying effort against the caps.

MasterCard’s campaign has included studies and surveys arguing that caps on interchange fees (a) result in increases in cardholder fees, (b) fail to result in any pass through of retailers’ savings to consumers, and (c) discourage the development of electronic payments.  MasterCard has also argued that a one-size-fits-all cap to interchange fees across countries where market conditions vary significantly does not make economic sense.  These arguments are undercut by Visa’s decision not to take a more aggressive stance in its own confrontation with the Commission.

The Commission’s proposed Regulation would also require networks to abolish in part their Honor All Cards rules, which require merchants to accept all cards of the same brand/category.  Under the Regulation, no such rule could be applied unless the cards in question were subject to the same interchange fee which, moreover, must comply with the caps set by the Regulation.  In other words, a network would only be permitted to adopt (a) a rule requiring acceptance of all its credit cards that are subject to the same interchange fee, which cannot be higher than 0.3%, and (b) a rule requiring acceptance of all its debit cards that are subject to the same interchange fee, which cannot be higher than 0.2% /7 cents, whichever is lower.  This partial abolition of the Honor All Cards rule would allow merchants to limit the choice of payment cards they accept to lower cost cards.  It would also create a more competitive environment for cards with interchange fees not regulated under the Regulation and, in particular, open the possibility for merchants to negotiate lower bilateral interchange rates with issuers without running afoul of the Honor All Cards rule.

Once the European Parliament confirms its position on the proposed Regulation in April, it will be considered by the Council of the European Union.  Both institutions must agree on a final text for it to be adopted.

It is unlikely that retailers that have led the fight against the ills of MIFs by prodding the Commission into action, and European consumers concerned by high interchange fees will be satisfied by the short-term remedies offered by Visa (and MasterCard).  They may even view the uncertain future of the Commission’s legislative efforts as a cause for concern.  Such retailers and consumers may well push for new initiatives to support the EU’s legislative proposals and additional private litigation to address the persistently high interchange fees that they believe are inconsistent with their rights under EU and national competition laws.

— Edited by Gary J. Malone