Mastercard must drop fees it charges for cross-border transactions or face daily fines of 3.5 percent of daily global turnover, European Union regulators said Tuesday.
The European Commission said that multilateral interchange fees charged to consumers for payments made in a different European country with either their MasterCard credit cards or Maestro debit cards unfairly inflated costs for retailers.
EU Competition Commissioner Neelie Kroes also warned that she would reopen a probe into Visa’s fees on Dec. 31.
“Consumers foot the bill, as they risk paying twice for payment cards. Once through annual fees to their bank. And a second time through inflated retail prices, given that retailers set their prices taking account of all costs,” Kroes said, calling the fees “a tax on consumption.”
MasterCard said it would appeal to the EU courts, claiming the decision would lead to higher cardholder costs and fewer electronic payments.
“The Commission failed to appreciate that without a mechanism to fairly share costs among all the participants in a payment system that functions across Europe and around the globe, consumers will be hurt,” said MasterCard Europe President Javier Perez.
Kroes warned that it “would not be wise” for the card network to hike other fees.
Neither the EU nor Mastercard would discuss how much the fines would amount to, but Mastercard had $3.3 billion in revenues in 2006. Fines would be based on the turnover in the current fiscal year.
Europeans make more than 23 billion card payments every year worth over 1.35 euros trillion ($1.94 trillion). They pay additional fees using their cards in another European nation, which regulators say curtails Europe’s attempt to create a single market in 27 EU states.
Some 45 percent of European payment cards carry a MasterCard or a Maestro logo.
Visa continues to speak with the EU, but said cutting interchange fees would force consumers to pick up some of the cost burden from retailers.
“We see no evidence that Visa Europe’s interchange has acted as a tax on consumption or has caused consumers to pay twice,” it said in a statement. “Fees must be set at commercially viable levels, so that the industry can justify its continued investment in innovation, security and payment efficiency.”
Europe’s biggest retailers lauded the action by EU regulators.
Ikea said credit card policies have forced the furniture retailer and customers to pay “excessively high credit card fees.”
“It is incomprehensible that in 2007, despite all technological progress, accepting cash in our stores is still substantially more cost efficient than accepting credit cards,” said CEO Soren Hansen.
British supermarket chain Tesco said it pays 100 million pounds ($200 million) a year to process card payments, money that inhibits improved products and lower prices for consumers.
MasterCard’s cross-border interchange fees, introduced in 1992, range from 0.4 percent and 1.2 percent of each transaction, the highest rates in Europe and twice the fee MasterCard charges in Australia, the EU said.
The money is kept by the customer’s bank and charged to retailer banks — which then pass on some of that cost to shops.
The same fees are also charged to credit card payments some people make in their own country if they live in Belgium, Ireland, Italy, the Czech Republic, Latvia, Luxembourg, Malta or Greece.
The EU said lower charges should cut retailer costs — something several large European chains say they would do if the card charges disappear. Retail agreements with MasterCard prohibit them from giving a cash discount or explaining the charges to customers. A group of retailers banded together to make an initial complaint against MasterCard in 1997.
The EU executive said card networks — run by groups of banks — can charge such fees only if they can prove a greater benefit for consumers or the economy. MasterCard had failed to do so, regulators said.
The warning should also apply to Visa, Kroes said.
“We will reinvestigate Visa after Dec. 31, they are well aware of what our policy is,” she said. “I sincerely hope and trust the MasterCard decision will provide guidance for the way ahead.”