Mastercard says EU position leaves interchange fees in 'cloud of uncertainty'

Mastercard says EU position leaves interchange fees in 'cloud of uncertainty'

	Published : Wed, 31 Jan 2007 17:42 By : Agencies Print this Story

BRUSSELS (AFX) - MasterCard Inc said that while it welcomed the European Commission's decision not to abolish interchange fees, the EU executive's inquiry conclusions still leave the system in a 'cloud of uncertainty.'

As the Jan 1 2008 deadline to implement a Single Euro Payments Area (SEPA) for the European banking system approaches, MasterCard said it needed a 'clear green light' from the commission on the interchange issue, 'not a yellow one.'

The credit card group noted that a cut in interchange fees -- paid by the merchant's bank to the cardholder's bank to cover the costs of operating debit and credit card payment networks -- would damage the efficiency of the card payments network.

President of MasterCard Europe, Javier Perez, said: 'Zero or low-interchange fee schemes are often based on price regulation, cross-subsidisation or operating losses.'

Vice-president of Visa Europe Steve Perry said he was 'initially pleased' that the commission had taken a more 'measured approach' and that its 'position has changed' on its threat to abolish fees.

'(It does) understand that interchange has a very important (role) to play (in the market),' he added

The European Commission earlier published its findings from an in-depth 18-month inquiry into the retail banking and payment card sectors.

On the payment cards, the commission noted that there are 'large variations in merchant and interchange fees for payment cards, barriers to entry in the markets for payment systems and credit registers, obstacles to customer mobility and product tying.'

It said that while it is not arguing for zero interchange fees, the operation of this system in some payment networks raises concerns.

The commission said there are large variations in interchange fees between banks across the EU.

In the past, EU competition commissioner Neelie Kroes warned that the elimination of the fees altogether remains one of the options considered by the EU executive.

Credit card groups such as MasterCard and Visa have staunchly supported the interchange system as crucial to the working of the payments industry.

They argue that setting the optimal level of interchange fees, arranged by the groups themselves, is a delicate balancing act that, if tampered with, would destabilise the efficient workings of the market.

They also refute suggestions that the system generates excessive profits for credit card companies.

At the end of June last year, the commission made antitrust charges against MasterCard for breaching EU rules by setting interchange fees and allegedly restricting competition between banks.

The charges follow previous ones made against the group on interchange fees in 2003.

nina.chestney@thomson.com

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