MasterCard loses EU appeal over cross-border interchange fees

The games up. Its time for schemes to take immediate action and reduce interchange fees now.

@Brendan - Please note (in the article) that MasterCard reduced them in accordance with the ruling 7 years ago. This appeal simply endorses what happened then, and prevents them going up again (as if they could). 

This is more of a psychological 'lose' for MasterCard than anything else; but some might also say that it also rather more reflects the outcome of their decision to withdraw its operations in EU and migrate everything to the USA. 

@Bill, while you are factually correct, I believe that the importance of this ruling is to reinforce the fact that credit card interchange fees far exceed the costs they are supposed to cover, that they are set in an anti-competitive manner, and that the major card brands can no longer operate without regard to regulations that apply to other businesses.

@Jim - indeed - and especially the case in the presence of dominating worldwide duopoly. This has long-needed to be addressed commercially (the dupopoly not the interchange issue per se), and all the small payment initiatives that are evolving are either destined to fail or very much sit on the 'rails' of the duopoly; or get purchased by M/V - or A. This whole duopoly thing, as much as we love M/V most certainly leads to complacency, the absence of directional leadership and initiativitis rather than 'strategic direction' or trailblazing.

What makes thinks now quite exciting is that we have had THREE major announcements in the last 48 hours: Apple setting direction through its NFC / Tokenisation / EMV standard endorsement, MasterCard mandating EU NFC, and Visa addressing tokenisation. And this all seems to link to a 3rd party (Apple) doing something dangerous for the Dupoloy.

@Bill – you’re correct that MasterCard has already reduced cross-border interchange. However, the importance of the ruling is that it sets a precedent that interchange fees are anti-competitive and must reduce. Hence why it’s such a significant announcement. 

Hopefully, this ruling will send a strong message to other countries that there is a legal antidote to artificially-inflated payment systems costs inflicted by the major card brands.  

And is not the problem partly driven by the issuers who in general (but changing) run the schemes and sit on their boards and decide what to do - who set the interchange rates and keep them as high as they can for as long as they can, and let the schemes take the flack for their decisions. Surely what is also needed is for the balance of power (and attention) within the schemes to migrate away from the issuers and much more towards the acquirers and the retail community. Were they to do this, then the rates would have been driven down and the schemes woudl be reacting faster to, anticipating initiatives and moving markets more towards the retailer community and solving the problems associates with cardholders needs at the point of payment. Wheras now, we have a situations where people like Apple !!! are setting the strategy challenges on the Payments Industry agenda. 

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@Bill  My head agrees with everything you say but my heart still regrets the inevitable unintended consequence of this meddling by the authorities in a free market, which is that as consumers we will all end up paying more for card payments in the form of higher annual fees and so on as issuers react to the loss of interchange income and try and make money out of card payments in some other way.  All that has happened is that the well organised merchant lobby has proved to be stronger thsn the consumer lobby, as will always be the case.

@Nick - I cannot help agreeing with you too. We do not know which way this will lead. I would say though that the schemes are still run by the issuers in every decision/ruling/new rules/new mandates etc. and in the USA, but the absence of an EMV solution based upon many, many issuer focussed objections. The retailer lobby can be dangerous, I agree, but I do not think that they are getting a big enough voice in these issues at the moment. But I am maybe blinded a little by all the problems that I am seeing workning with acquirers, big merchant groups and schemes - where things look this way. Acceptance / Acquiring representation in VE has been all but anihilated in the recent changes there, and scheme rulings and member letters from all schemes favour expressions and talk of protecting the cardholders/issuers rather than protecting the integrity of the payment systems or points of sale.

In the case here, the costs of all these appeals and the underlying case is all about trying to protect the ISSUER revenues from interchange after all - whereas MasterCard 'could' have been accepting this and lowering rates further (reversing them) if they had an eye on the acquirer / retailer community. 

Again, it is incredible that the Apple announcements are talking about taking fees from issuers and not charging merchants anything. That will surely ring the changes. And as you say, this will allow market / commercial forces to start to drive change. The problem has been that the presence of the strong and invincible duopolies has prevented the market/commercial forces from being free to act. 

@Bill - Again, you're right.  Issuers have always had the lion's share of attention within the schemes and the acquiring side of the business has always had a bit of a Cinderella status.  I think this is inevitable given that most Acquirers accept all brands whereas with Issuers there's always the potential to persuade them to issue more of one brand than another or even "flip" portfolios.  However, if it cheers you up at all, I've noted quite a marked change of emphasis within the schemes in recent years with a recognition that the acquiring side of the business deserves more attention.  I agree we'll see changes, and whilst I haven't really digested the significance of ther Apple announcement yet I'm sure you're right that this is part of the story,

@Nick - I believe you cut to the basis for the EU's action, namely that the strangle hold the 2 card brands had on merchants precluded the free market from operating.  Merchants were not able to negotiate interchange rates and the similarity of rates between the 2 card organizations eliminated the competition that would keep rates down in a free market.  

@Jim - absolutely! Wallmart and others have tried to break this in the courts - but this is slow and only leads to a 'Wallmart win'. But Apple will hopefully open things up. The danger is that this will only be an 'Apple win' - again because of the size of Apple.