Europe’s top court will rule on Thursday whether MasterCard’s cross-border card fees, a lucrative revenue source for the financial industry and the subject of a decade-long battle with EU regulators, are anti-competitive.
Regulators on both sides of the Atlantic have cracked down on so-called payment card interchange fees, saying they are too high and cost consumers and retailers billions of euros a year.
While Thursday’s ruling applies only to MasterCard and its cross-border fees within the European Economic Area, it could set the tone for attempts to cap similar charges for card payments across the board within Europe.
MasterCard’s regulatory troubles started in 2003 when the European Commission said its cross-border fees within Europe hampered competition. Four years, later the commission ordered MasterCard to withdraw them.
The fees are set by payment card companies and collected by banks. When a Spanish credit card is used in a French store, for example, the bank used by the French shop owner has to pay the bank in Spain a percentage of the transaction.
The Commission ruled that such fees inflated prices merchants charged customers to accept payment cards, and this restriction on price competition harmed companies and consumers.
MasterCard temporarily withdrew the fees in 2008 but came to an agreement in 2009 to charge them again, but with caps of 0.2 percent for debit cards and 0.3 percent for credit cards.
The company’s bigger rival Visa Europe agreed to similar limits on cross-border card transactions within Europe earlier this year to settle an EU investigation.
Thursday’s ruling is the end of long legal road. MasterCard challenged the initial European Commission 2007 ruling in a lower court, and lost in 2012. It then went to the Court of Justice of the European Union (ECJ).
In January, an ECJ adviser backed the Commission’s push to cut such charges. While the opinion is non-binding, judges follow such recommendations in most cases.
While MasterCard’s capped fees for cross-border transactions should not be affected if it loses the case, such a ruling could encourage regulators pushing for similar caps across the board in Europe, in a bid to boost e-commerce and cut business costs.
In July 2013, European financial regulators proposed 0.2/0.3 percent caps for all cross-border card transactions, as well as for payments in the same country a card was issued.
The proposals have yet to be approved by the European Parliament and the 28 EU countries and could still be modified due to heavy lobbying from banks and other parties.
Britain’s Competition and Markets Authority is also investigating fees charged by MasterCard and Visa for domestic card payments. It has put its inquiry on hold, pending the outcome of Thursday’s MasterCard ruling.
MasterCard handles payments for 2 billion cardholders and tens of millions of merchants. Visa Europe is the European licensee of Visa.
The case is C-382/12 MasterCard versus the Commission.