MasterCard has lodged an appeal against the European Commission's ruling that the non-negotiable interchange fees it charges for cross-border card transactions violate rules on restrictive business practices.
The EC said in December that an investigation found that the multilateral interchange fees (MIF) charged for cross-border transactions made with MasterCard and Maestro debit and credit cards violated EC Treaty regulations.
MasterCard's fees "inflated the cost of card acceptance by retailers without leading to proven efficiencies", said the Commission. MasterCard was given six months to comply with an order to withdraw the fees or it will incur daily penalty payments of 3.5% of its daily global turnover in the preceding business year.
In a statement issued today MasterCard says it has applied to the European Court of First Instance to annul the EC's decision.
MasterCard argues that the Commission has failed to recognise that payment systems "cannot operate without default settlement terms between banks that issue cards to consumers and those that acquire transactions for merchants, which requires the setting of an interchange fee".
The Commission has also refused to recognise the efficiencies that four-party payment systems create and the fairness of MasterCard's interchange fees, says the card network.
"Market forces, not regulation, should drive key decisions such as the setting of interchange fees and retailers' choices over which forms of payment to accept," says Javier Perez, president of MasterCard Europe. "If left unchallenged, and especially if followed by national regulators, the Commission's decision would not only be bad news for consumers but a blow to the European payments industry."
Perez argues that from a business point of view, a payment system that does not allow for efficient recovery of costs is not sustainable in the long term and limits the scope for innovation in payment services.
"The Single Euro Payments Area (Sepa) for payment cards, launched at the beginning of the year, will continue to require enormous investment and commitment by market players. It's difficult to expect them to expand into new markets when regulation lowers the incentive to take those risks," he adds. "The best way to proceed for the payments industry and Sepa is to follow the established European public policy principle of relying on competition to deliver what consumers want."
MasterCard's cross-border interchange fees, which were introduced in 1992, range from 0.4% and 1.2% of each transaction. The fee is kept by the customer's bank and charged to the merchant's bank, which then takes this cost element on board in setting its prices to merchants.
In the December ruling the EC said card networks can charge these fees only if they can prove a greater benefit for consumers or the economy. EC Competition Commissioner, Neelie Kroes, said currently consumers foot the bill for interchange fees as they risk paying twice for payment cards - once through annual fees to their bank and a second time through inflated retail prices paid not only by card users, but also by customers paying cash.
The EC's ruling will also as act as a guide for Visa Europe. In 2002 Visa negotiated an 'antitrust exemption' agreement with the EU's Competition Commission and agreed to reduce levels of interchange fees for processing card transactions in return for immunity from legal action.
However the Visa exemption ended at the end December and Kroes is reported to be re-investigating Visa's fee structure.