European Court of Justice: MasterCard’s payment card interchange fees are anti-competitive

MasterCard has lost a seven-year battle with the European Commission over the validity of its interchange fees for cross-border card payments, following a decisive judgement at the EU’s highest court.

„The European Commission welcomes today’s judgement by the European Court of Justice in the MasterCard case (case C-382/12P). The judgment confirms that MasterCard’s inter-bank fees for cross-border payment transactions in the European Economic Area (EEA) restrict competition in the Internal Market, in breach of EU competition rules.”, according to the press release.

In the same document it is explained that multilateral interchange fees („MIFs”) are paid indirectly by a retailer to a cardholder’s bank each time when a cardholder pays with a payment card. Such fees, of which consumers (cardholders) are generally unaware, inflate the cost of card acceptance for merchants. The fees are then passed on to all consumers as they are included in the prices charged by the merchants. The large variety of fees between Member States hinders the development of an internal market in card payments and related markets, such as internet and mobile payments.

The Court holds in particular that MIFs are a restriction of competition since they limit the pressure which merchants can exert on acquiring banks when negotiating the costs charged by those banks and that MIFs are not objectively necessary to operate the MasterCard system. It also holds that MasterCard is an association of undertakings even after the Initial Public Offering (IPO) of MasterCard Incorporated in 2006. Finally, the Court confirms that MasterCard produced insufficient evidence that MIFs create efficiencies that are passed on to consumers and that any advantages flowing from the MIFs to cardholders cannot compensate their disadvantages.

In December 2007, the European Commission declared the multilateral interchange fees (MIF) applied by MasterCard on cross-border card payments to be contrary to competition law.  The card scheme subsequently reached an agreement with the EU to cap its fees for cross-border transactions within the trading bloc at 0.2% for debit cards and 0.3% for credit cards while continuing to fight a rearguard legal action against the original decision.

In publishing its ruling today, the Court of Justice of the European Union (ECJ) said a lower court verdict in 2012 upholding the European Commission’s initial finding against MasterCard in 2007 was correct. As such, „it sets an awkward precedent for the card schemes and paves the way for further action from national regulators”, according to finextra.com.