Merchants in the United Kingdom won an important battle against interchange fees on Wednesday but it remains uncertain just how much that will mean to them in terms of remuneration from Visa Inc. and Mastercard Inc. The case also could have ramifications for similar action in the U.S. market, some observers say.
Britain’s Supreme Court handed down a long-awaited ruling that the networks’ interchange schedules unlawfully restrict competition. The verdict dismissed an appeal of a lower-court decision by Visa and Mastercard and could benefit card-accepting merchants in the country by requiring the networks to compensate them for years of interchange-fee payments. U.K. businesses have paid 17.35 billion euros (approximately $19.5 billion) in such fees since 2012, including 2.19 billion euros (approximately $2.5 billion) last year, estimates CMSPi, a research group that advises merchants around the world in payment matters.
The case now heads to the U.K. Competition Appeal Tribunal for a decision on how much relief the networks may be liable for. The networks appear to be pinning their hopes on these proceedings. “It is not a final ruling and there will be further court hearings to determine the key issues raised,” says a Mastercard spokesperson. “These hearings will most likely take place in 2021. We continue to firmly believe that retailers of all sizes derive real value from our network.”
Added a Visa spokesperson, “We are disappointed that the Supreme Court did not agree with the previous High Court ruling that Visa’s UK interchange complies with competition law. Interchange is a critical component to maintaining a secure digital payments ecosystem that benefits all parties, including consumers, merchants, and banks.”
Merchant litigants in the case include big merchants such as J Sainsbury plc, William Morrison plc, and Asda, a unit of Walmart Stores Inc. Merchants have historically paid interchange to card-issuing banks to compensate for such costs as fraud losses and the cost of money. Both costs have dropped over the years, merchants argue.
What could happen next is a matter for speculation. Sources say it’s unlikely the CAT will award merchants full compensation for fees paid. Some observers argue merchants and banks in the United States should pay close attention to the proceedings, as they could influence decisions locally.
Unlike the centuries-old U.S. Supreme Court, the U.K. version is very new, having been introduced only in 2009. The court’s latest decision “shines a light on U.S. swipe fees, which have been much higher [than in the United Kingdom],” says Alex Ellwood, head of merchant advocacy at CMSPi, a group that advises merchants on payments matters. Other observers argue the time is ripe for a re-examination of the interchange regime in the United States. “It’s high time that the industry—in this country at least—figure out a practical, fair, value-based, innovation-tolerant way to figure out the true worth of these networks in a world where there actually might be meaningful competition,” says Steve Mott, principal at BetterBuyDesign, a Stamford, Conn.-based payments advisory.
The action by the U.K high court isn’t the only matter U.S. payments services face in Europe on competition grounds. It follows by one day a move by the European Commission to investigate Apple Inc.’s App Store and its Apple Pay mobile-payments service on antitrust grounds. Specifically, the commission is concerned that Apple permits only Apple Pay to access the NFC function on iOS devices. Apple in November protested legislation in Germany that aimed at forcing access to that chip for other payment apps.