In its first antitrust decision against the international credit card industry, the European Commission has ruled that the interchange fees charged by Visa member banks to merchants amount to a restrictive collective price agreement.
At the same time, the Commission has cleared Visa of anti-competitive charges relating to the so-called no-discrimination rule - which prohibits merchants from charging customers an additional fee for paying with a Visa card. The Commission has ruled that abolition of the rule would not substantially increase competition. The ruling follows market surveys in Sweden and in the Netherlands, where the no-discrimination rule has been abolished following the intervention of national competition authorities.
The Commission, however, doubts whether another controversial Visa provision, namely the interchange fee, is acceptable under EC competition law. The interchange fee is paid by the bank of the merchant to the bank of the cardholder for each card transaction. The amount of this fee is set by Visa International and amounts to an agreement between the member banks of Visa. In practice the banks which have to pay the interchange fee pass it on to their clients, the merchants. On average the interchange fee is about 80% of the overall amount paid by the merchant to his bank each time he accepts payment by a Visa card.
Eurocommerce, a trade association representing European retailers, formally complained to the Commission about the Visa rules on interchange fees as well as those of other payment card systems.
In the Statement of Objections which has now been sent to Visa International, the Commission states that the interchange fee for international operations amounts to a collective price agreement, which is restrictive of competition. In the Commission's view, Visa International has not so far put forward any convincing reasons showing that the interchange fee fulfils the cumulative conditions for an exemption under the EC antitrust rules, such as that it would be indispensable for the functioning of the Visa payment card scheme. As has also been pointed out by Eurocommerce, other payment card schemes, such as ec-Karte in Germany, may function without interchange fees.
The Statement of Objections is a preliminary step in the proceedings and does not prejudge the final outcome of the investigation. It invites Visa to submit its written observations and Visa may also ask for an oral hearing. The Commission hopes to reach a final decision on the interchange fee in the first half of 2001.
The Commission has several other pending cases relating to payment card systems which raise similar issues. The Commission rulings in the Visa International case are considered critical in setting the pace for the resolution of the other cases.
"Consumers must be free to use cards to pay for their purchases. But merchants ought not to be de facto forced by the card companies and the banks to foot the bill for transactions made with cards, which of course carry a cost.The Commission has in this regard in particular doubts that the interbank commission set by Visa for each card transaction, which is in practice passed on to merchants, is necessary and has invited Visa to comment," says European competition commissioner Mario Monti.
The European Commission's Visa case is different and separate from a pending case at the Department of Justice of the United States against Visa and MasterCard International, which focuses on the fact that Visa and MasterCard are owned by the same banks and on rules preventing the member banks from issuing rival cards such as Discovery and American Express - so-called exclusivity. The European board of Visa considered introducing a similar exclusivity rule in the Europe in the mid 90s, but withdrew the plan after the Commissioner for Competition at the time had warned publicly that Visa's proposal could not be accepted.