The European Union MIF-ed by Visa

The European Union MIF-ed by Visa

No one beats the Europeans when it comes to coining new terms and acronyms. During the ongoing crisis we’ve been treated to gems like PIGS (Portugal, Ireland, Greece and Spain; somewhat awkwardly, the term is sometimes spelled PIIGS to include Italy), the European Financial Stability Facility (vulgarly known as a temporary bailout fund), its successor the European Stability Mechanism and, of course, my personal favorite “internal devaluation” (basically forcing the PIGS to take pay cuts). And no one has made more Eurospeak contributions than the European Commission (EC) itself. In a very short statement released today, the EC is treating us to a brand new, and very worthy, addition to the list, which I’m sure will leave a lasting impression.

The statement at issue happens to concern the multilateral interchange fees (MIFs), a jewel in itself, for which the EC cannot claim authorship, set by Visa Europe, the European arm of the global payment network, which have prompted the EC to respond with “supplementary statement of objections” (SSOs). Quite apart from their purely linguistic value, these SSOs aim to force Visa to cut its interchange fees on cross-border European credit card transactions. Let’s see what we can make of it.

Visa Europe’s Cross-Border Fees

Now, before I get going, I should say that I’m no expert on European payment processing (or Eurospeak, for that matter, although I’m certainly an ardent admirer), but I think I know enough to be able to comment on the MIFs and SSOs in question. So let’s begin by defining the fees at issue. The EC:

[T]he European Commission has informed Visa of additional concerns about possible violations of EU antitrust rules concerning multilateral interchange fees (MIFs) set by Visa. The so-called ‘supplementary statement of objections’ (SSO) relates to MIFs set by Visa for transactions with consumer credit cards in the European Economic Area (EEA). MIFs are an important part of the total cost that retailers must pay for accepting Visa’s consumer payment cards and establish a minimum price for retailers. The Commission’s preliminary view is that these MIFs restrict competition between banks and infringe EU antitrust rules that prohibit cartels and restrictive business practices.

Today’s SSO concerns all MIFs set directly by Visa in the EEA for transactions with consumer credit cards. These MIFs currently apply to all cross-border transactions in the EEA [European Economic Area], as well as to domestic transactions in eight EU Member States (Belgium, Hungary, Ireland, Italy, Luxemburg, Malta, The Netherlands and Sweden). These inter-bank fees are paid by merchants’ banks (acquirers) to cardholders’ banks (issuers) for transactions with Visa’s consumer credit cards.

Well, there is clearly an issue when a “cross-border” fee is applied to a domestic transaction. And anyway, why would cross-border fees be applied in what is, after all, a single market? So something clearly needs to be fixed here.

What’s to Be Done?

Well, here is the EC solution:

The Commission has reached the preliminary conclusion that MIFs reduce price competition between banks by creating an important cost element common to all acquirers. The Commission considers that Visa’s MIFs harm competition between acquiring banks, inflate the cost of payment card acceptance for merchants and ultimately increase consumer prices.

No surprise here; the EC thinks that the MIFs need to go. And Reuters is telling us what would happen otherwise:

The company [Visa] could face fines of up to 10 percent of its global turnover if found in breach of EU antitrust regulations. It posted record revenues of 1 billion euros ($1.22 billion) last year.

Now, it’s important to stress that the fees that are being disputed here are not all interchange fees, but only the “cross-border” segment of the table (parentheses needed because these are applied to domestic transactions in eight European countries as well). And I, for one, see no reason such a fee should be charged to a transaction that doesn’t involve any currency conversion. Moreover, applying it to a domestic transaction is plainly absurd. So I have no problem with these fees being struck down. What I do have a problem with is when the EC, or the Congress in the U.S., get involved in the business of setting the interchange fees, but that’s a different conversation altogether.

The Takeaway

I don’t understand why the EC has dealt separately with MasterCard’s and Visa’s cross-border fees. Just in May we heard that the European General Court had ruled against MasterCard, which had brought an action against a 2007 EC ruling prohibiting the second-biggest payment network from charging cross-border inter-bank fees in Europe. Why would it take the EC five years to take the same decision about Visa’s fees? Well, there may or may not be a sensible explanation (I suspect that the latter is the more probable alternative), but I confess to being grateful for the delay: how else would we have learned about the MIFs and SSOs.

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