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A ruling in the United Kingdom could imperil the validity of multilateral interchange fees in the United Kingdom and Ireland assessed by Mastercard Inc. and Visa Inc. A U.K. tribunal Friday ruled the fees infringe on competition law.
The Competition Appeal Tribunal ruled the fees infringe on prohibitions to restrict, prevent, or distort competition within the European Union. Multilateral interchange fees are levies a merchant’s bank pays to the issuer of a consumer card when a payment card transaction is made, according to the BEUC, a European consumer organization. Though the United Kingdom left the European Union in 2020, it continues to follow many EU laws. Friday’s ruling applies to the United Kingdom and Ireland.
The decision was welcomed by Scott+Scott, a London law firm representing merchants in the case, saying the judgment equates the MIFs “to a non-negotiable floor to the Merchant Service Charges which merchants have to pay to the bank that process their card payments.” Scott+Scott says the MIFs are imposed by Visa and Mastercard on acquirers, who have to pay it, and who pass the cost along to merchants, “who are powerless to negotiate it.”
Both card brands took issue with the judgment. Mastercard says in a statement to Digital Transactions News it strongly disagrees with the ruling, which it calls a “deeply flawed decision.” It says it will seek permission to appeal. Visa also disagrees with the ruling and expects to appeal.
The ruling is not good for the brands, suggests Eric Grover, principal at Intrepid Ventures, a Minden, Nev.-based consultancy. “Clearly the U.K. CAT’s ruling that multilateral interchange fees violate competition law is bad for Mastercard and Visa, and bad for the payments ecosystem,” Grover says by email. “Part of the value of the payment network comes from interchange fees funding cardholder value and issuer innovation. The CAT decision envisions all interchange fees potentially being bilaterally negotiated, which would be unwieldy and diminish total network value.”
Both Mastercard and Visa have long argued interchange plays an important role in payments. “Interchange plays a vital role in supporting the UK payments ecosystem. It funds innovation and ensures people and businesses continue to pay and get paid quickly, easily, and securely,” the Mastercard statement reads.
Visa, in its statement, says “interchange is a critical component to maintaining a secure digital-payments ecosystem that benefits all parties, including consumers, merchants, and banks.”
The latest ruling emerged from the first of three expected court cases on the matter. Expected later this year, according to Scott+Scott, is a ruling on pass-on, defined as whether or not merchants or customers suffer harm from the fees. A third issue, which has not been litigated, could challenge whether Mastercard and Visa can impose scheme fees on merchants. Generally, in Europe, scheme fees are paid by acquirers to the card brands, as explained by processor Worldline.
