EU orders Mastercard to slash 'consumption-tax' charges

27 December 2007 / by None
Mastercard is to scrap its cross-border fee payments in Europe after a new ruling from the European Commission ordered the credit card company to abandon its fee charging, saving consumers and retailers billions of pounds.

In the Commission's official press conference, it was announced that MasterCard's MIF, the charge levied on each payment at a retail outlet when a transaction is processed, was creating unnecessary inflated costs "without leading to any advantage for consumers or retailers."

The move could now be repeated within the UK, leading to credit and debit card fees being slashed further.

For the past 15 years, MasterCard has been freely charging a 'multilateral interchange fee' (MIF) of between 0.4 per cent and 1.2 per cent on international transactions made using MasterCard and Maestro credit and debit cards. This means that consumers have been paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices, which already include the MIF fees.

The decision means that MasterCard has six months to withdraw its MIF charges and failure to comply could see penalty payments of 3.5 per cent of MasterCard's daily global turnover - listed at $3.3 billion for 2006 - being levied at the company.

According to lobby group estimates, the ruling is expected to save retailers in Europe around €10 billion. Speaking at the European Competition Commissions press conference, Commissioner Neelie Kroes said that the decision "addresses MasterCard's anticompetitive behaviour and removes the danger of inflated prices due to the MasterCard MIF. Ensuring that the Single Market for payments can work efficiently is a priority of the Commission. We will remain particularly vigilant in this area and address any competition restrictions that threaten to hamper the proper functioning of the market."

Ms Kroes went on to say that "the economic importance of MasterCard's MIF - cannot be underestimated" as in the EU alone, over 23 billion payments are made every year with payment cards, with a value exceeding 1350 billion euros. Yet MasterCard's charges are among the highest in Europe - twice as much as it charges in other continents such as Australia.

The move, which will also apply to domestic credit card transactions Belgium, Ireland, Italy, the Czech Republic, Latvia, Luxembourg, Malta and Greece, is expected to impact on MasterCard's biggest competitor, Visa who has been exempt from the Competition Commission's MIF ruling since 2002, although the exemption expires on 31 December, meaning that VISA must now be "in full compliance with EU competition rules."

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