Mastercard have been ordered to abolish certain fees in a move that could save consumers £7bn.
On 19th December 2007 and following months of investigations by The European Competition Commissioner, Neelie Kroes, it was ruled that MasterCard’s multilateral interchange fees (MIF) violate EU rules on business practice.
Interchange fees are the fees charged between banks for processing a card transaction. Shops must pay the fees to their banks for each MasterCard purchase and in turn inflate retail prices.
The Office of Fair Trading (OFT) first investigated interchange fees with regards to Visa credit cards in 2004. However, in 2005 the OFT also found that MasterCard’s interchange fees had been set far too high.
MasterCard had been strongly criticised by retailers and EuroCommerce for inflating costs for cross-border fees on both credit and Maestro debit card transactions. The fees range from 0.4% to 1.2% of the overall transaction and have been in place since 1992.
Retailers have been losing hundreds of millions of pounds each year due to expensive interchange fees when accepting cards. The fees do not bring any benefits to the consumer and do not contribute to economic or technological progress. Charging fees for international purchases thus violates EU antitrust rules.
The Commission has ruled that MasterCard must get rid of these fees within the next six months. This EU decision applies directly to fees on purchases made by consumers when abroad. If this sanction is not upheld, then The Commission will levy daily fines worth up to 3.5% of global turnover. It is estimated that consumers will also save an estimated £7 billion when the cross-border fees are removed.
MasterCard is set to appeal to the EU courts about this ruling.
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