MasterCard Europe recently introduced a new interchange fee structure for MasterCard credit and Maestro Intra European Economic Area debit cards to merchant acquirers.

But EuroCommerce, the governing body representing the retail, wholesale and international trade sectors in Europe, said MasterCard raised its interchange fees as much as 160 percent, which, according to EC, violates a December 2007 agreement to eliminate interchange at the POS. The European Commission and the EC are trying to determine if implementation of this new and reportedly unexpected fee structure is a violation of antitrust law.

Additionally, EC said merchants and consumers realized no savings during the fallback (period of no interchange for POS purchases) because banks refused to renegotiate acquiring contracts with merchants to reflect savings from lack of interchange.

Down Under dilemma

"Our merchants complained about the variety of excuses banks gave for not passing on the savings to them," said Xavier Durieu, Secretary General of the EC. "MasterCard said that the zero rate was only provisional and under appeal, so banks subsequently refused to pass fee reductions onto merchants and, ultimately, the consumer."

MasterCard cited Australia's decision in 2003 to eliminate interchange as a justification for its rate increases in Europe. The card network said eliminating inter-change Down Under was a boon to merchants, but consumers have paid almost $1 billion more since then as a result of increased annual fees and reductions of rewards programs.

Broken promises

The EC disputes MasterCard's position.

"We see such fee increases as a clear attempt by MasterCard to circumvent the Commission's decision against their cross-border interchange fees," Durieu said. "[MasterCard] is trying to recoup lost revenue by increasing fees without justification.

"And with the arrival of SEPA [Single Euro Payments Area - the consolidation of European payments into one platform], we need full transparency on all card fees; MasterCard's fee increases contradict European financial institutions' promises that SEPA would prevent price increases for cardholders."

MasterCard applied to the European Court of First Instance in March 2008 to annul the Commission's suggested interchange rates and said it reserves the right to change its rates at any time.

MasterCard's concerns with the Commission's decision focused on:

• The Commission's failure to recognize that four-party payment systems (issuer, acquirer, cardholder and merchant) cannot operate without settlement terms between the issuing and acquiring banks, which require interchange fees.
• The Commission's refusal to recognize the efficiencies of four-party systems and the fairness of MasterCard's interchange rates.
• The Commission's inaccurate conclusion that MasterCard's interchange fees restrict competition under the EC treaty rules.

Javier Perez, President, MasterCard Europe, said "MasterCard firmly believes that market forces, not regulation, should drive interchange rates, as well as give retailers' choice over which payment forms to accept."