Cut cost of using cards abroad or face huge fines, MasterCard told

MASTERCARD was warned by European regulators yesterday to drop its cross-border card fees within six months or face huge daily fines.

The company has been told to change how it sets its fees for international transactions on credit or debit cards as they are unfairly inflating costs for both retailers and customers.

The European Commission says that, for 15 years, the fees have violated the rules on fair competition.

The fees – known as multilateral interchange fees (MIFs) – apply to both MasterCard credit cards and Maestro debit cards, and range from 0.4 per cent to 1.2 per cent of a transaction.

MasterCard has been warned that if it does not get rid of the fees within six months, then the commission will impose daily fines worth up to 3.5 per cent of the company's global turnover, which amounted to £2.5 billion last year.

An investigation into the fees charged by MasterCard's arch-rival, Visa, is to be reopened by the commission next year.

However, MasterCard said it planned to appeal the commission's decision in the European courts and had "strong grounds" to challenge it.

The company said its decision to appeal was "based on its firm conviction that market forces, not regulation, should drive key decisions, such as the setting of interchange fees".

Neelie Kroes, the European Union's competition commissioner, said she was delivering a Christmas present to consumers by cracking down on unfairly high charges.

She emphasised that MIF schemes were not illegal as such, and every case had to be judged on its merit. But she said MasterCard's was an open-payment card scheme, which was deemed incompatible with EU competition rules because it did not contribute to technical and economic progress in Europe and did not benefit consumers.

She said: "The system inflates the cost of cards' acceptance by retailers, without leading to proven efficiencies. Fee agreements such as MasterCard's inflate the cost of card acceptance by retailers.

"Consumers foot the bill, as they risk paying twice for payment cards – once through annual fees to their bank and a second time through inflated retail prices paid not only by card users but also by customers paying cash."

The commissioner said she "sincerely" hoped MasterCard would not offset the impact of yesterday's decision by increasing prices elsewhere.

About 40 per cent of all payment cards in the EU either carry a MasterCard or a Maestro logo, with MasterCard cards accepted at about 85 per cent of businesses taking debit cards.

Kevin Hawkins, the director general of the British Retail Consortium (BRC), said: "We applaud the commission's decision to put an end to this unfair tax on consumers. This has been a long fight for the retail industry. MasterCard has clearly been abusing its position to bolster its bottom line and retailers and their customers are bearing the cost."

The BRC is pressing for card companies to introduce transparent charging systems, which include only the actual costs of processing transactions and operate on the basis of a fixed fee per transaction rather than a percentage.

The ruling will also apply to domestic credit-card transactions within eight EU countries – Belgium, Ireland, Italy, the Czech Republic, Latvia, Luxembourg, Malta and Greece – as they peg their rates to those set internationally by MasterCard.

MULTI-BILLION-POUND BONANZA'S HARD TO CREDIT

EUROPEAN consumers make more than 23 billion card payments a year, with a value of about £1,000 billion.

However, they face extra costs using their cards in another European nation, something EU officials say holds back efforts to create a single market out of the EU's 27 states.

The supermarket chain Tesco estimates it pays £100 million a year to process card payments.

Some 45 per cent of European payment cards carry a Mastercard or a Maestro logo.

The money from cross-border fees is kept by the customer's bank and charged to the retailers' bank – which then pass on some of that cost to shops. The same fees are also charged to credit card payments some people make in their own country if they live in Belgium, Ireland, Italy, the Czech Republic, Latvia, Luxembourg, Malta and Greece.

The EU said lower charges should cut retail charges – something several large European chains say they would do if the card charges disappear.

Retailers' agreements with Mastercard forbid them from explaining how much the charges add to prices.

But a group of them banded together to make the initial complaint against Mastercard in 1997.