The European Commission has announced the launch of a formal investigation into MasterCard in relation to the credit card company’s practices regarding interchange fees.
In a press release issued Wednesday, the Commission noted concern over three specific practices engaged in by the major U.S. network, citing possible breaches of EU antitrust rules.
The Commission cited concern over practices by MasterCard specifically in regard to interchange fees paid by cardholders who are not from the European Economic Area. Additionally, the Commission will look into the practice of so-called “cross-border acquiring,” which they say prohibits merchants from gaining benefits from rival banks established elsewhere within the internal market. They will also investigate MasterCard’s businesses practices in general.
According to the Commission, the above practices can “restrict competition” and lead to “higher overall fees” for merchants.
“Such behavior is liable to slow down cross-border businesses and harm EU consumers,” The Commission wrote.
In a statement, MasterCard said that it “intends to fully cooperate with the Commission,” and that “As a global electronic payments company, MasterCard always aims to balance the interests of both consumers and retailers to ensure that each party pays its fair share of the costs for the benefits it receives.”
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MasterCard does not make money off of interchange fees, which occur between merchant and cardholder banks after card-based transactions.
Timothy Willi, an analyst for Wells Frago, expressed support for MasterCard in a statement to StreetInsider, saying, “Although we believe the prospect of increased regulatory pressures in Europe has been a known risk for [MasterCard] for some time, the emergence of a ‘new’ investigation does pose some headline risk for the company at least in the short-term, in our view.
Nonetheless, we believe MasterCard is capable of working through any regulatory issues that arise in Europe to limit the negative impact on the company’s financial performance.”
This is not the first run-in between MasterCard and the European Commission. In 2007, MasterCard was prohibited from issuing cross-border interchange fees within the EEA, and in May 2012 the European General Court denied MasterCard’s appeal against that decision.
“The Commission prohibited MasterCard’s [multilateral interchange fees] because it inflates the base on which acquiring banks charge prices to merchants for accepting payment cards, as the MIF accounts for a large part of the final price businesses pay for accepting MasterCard’s payment cards,” the Commission wrote in 2007. “This restriction of price competition harms businesses and their customers.”
The Commission noted that it is also investigating Visa for similar practices, and announced an intention to propose legislation concerning payment cards and interchange fees this spring.
MasterCard today has lost more than $1 billion in market capitalization over rumors that they could lose up to $740 million – or 10 percent of its 2012 revenue – if found guilty.
To read more from the European Commission, read their full release here.
