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Brussels, 13 June 2013
Antitrust: Commission market tests Visa Europe's commitments – frequently asked questions
The European Commission is inviting comments from interested parties on commitments offered by Visa Europe. Visa Europe has offered to significantly cut its multilateral interchange fees (MIFs) for credit card payments, to a level of 0.3% of the value of the transaction (a reduction of about 40 to 60%) and to reform its rules in order to facilitate cross-border competition. The proposals by Visa follow the sending of a supplementary statement of objections by the Commission in July 2012 (see IP/12/871). As announced in May 2013 (see MEMO/13/431 and video statement by VP Almunia) the Commission is now seeking feedback on these proposals from interested parties through a market test. If the proposals address the Commission's competition concerns, the Commission may decide to make them legally binding on Visa Europe.
Payments by card play a key role in the EU internal market, in particular for purchases across borders or over the internet. European consumers and businesses are making more than 40% of their non-cash payments per year through payment cards. Any competition distortions in this field may therefore hamper the good functioning of the Single Market and harm European consumers through higher prices.
What are interchange fees?
Interchange fees are charged by a cardholder's bank (the 'issuing bank') to a merchant's bank (the 'acquiring bank') for each sales transaction made at a merchant outlet with a payment card.
Interchange fees are either agreed bilaterally, between one issuing and one acquiring bank, or multilaterally, by a number of issuing/acquiring banks or by means of a decision binding all banks participating in a payment card scheme. The industry refers to these multilateral interchange fees as "MIFs". A MIF can be a percentage, a flat fee or a combined fee (percentage and flat fee).
When a customer uses a payment card to buy from a merchant, the merchant receives from his bank (the acquiring bank) the sales price less a 'merchant service charge', the fee a merchant must pay to his bank for accepting the card as means of payment for that transaction. A large part of the merchant service charge is determined by the interchange fee. The customer's bank (the issuing bank), in turn, pays the acquiring bank the sales price minus the MIF and the sales price is deducted from the customer's bank account. The MIF is therefore an extra cost that is charged to the merchant, who then passes it on to consumers in the final price of the good or service.
What are the Commission's competition concerns?
In July 2012, the Commission informed Visa in a supplementary statement of objections that the MIFs set by Visa for consumer credit cards and a number of related practices may violate EU antitrust rules that prohibit anticompetitive agreements (Article 101 of the Treaty on the Functioning of the European Union – TFEU) (see IP/12/871). The concerns related in particular to:
The Commission has found that MIFs are a restriction of competition. This finding has been fully upheld by the EU General Court in its judgment on MasterCard (case T-111/08)1. Given that they restrict competition, MIFs may only be considered compatible with EU antitrust rules if they have positive effects on efficiency and allow a fair share of these benefits to be passed on to consumers in accordance with Article 101(3) of the Treaty on the Functioning of the EU.
Which commitments has Visa Europe offered as regards interchange fees?
Visa Europe has offered to cap the weighted average MIF for consumer credit card transactions at 0.30% of the value of the transaction. For instance, if the average transaction value were €50 an average MIF of maximum 15 cents would be charged. The cap would be applicable to cross-border transactions within the EEA and, separately, to domestic transactions in each EEA country where MIFs are either set directly by Visa Europe or the Visa Europe cross-border rates would apply by default (see list of countries above).
As regards international fees the commitments also cover cross-border card payments from the whole Visa Europe territory, which is broader than the EEA2.
Other international fees - such as fees that apply when a tourist from the US uses his Visa credit card to make a purchase at a merchant in the EEA – are not covered by the commitments. These fees are primarily set by Visa Inc. and not by Visa Europe. In this respect proceedings will continue and the case will remain open.
The commitments offered by Visa would reduce the MIFs concerned by 40-60%.
These commitments come in addition to Visa's commitment to cap its MIFs for debit cards at 0.20%. This commitment was made legally binding by the Commission in 2012 (see IP/10/1684).
Which commitments has Visa Europe offered as cross-border acquiring?
Visa Europe has offered to reform its system in such a way that banks will be able to apply either the domestic rate or a reduced cross-border interchange fee for both debit and credit transactions when they compete for clients cross-border. This is expected to lead to considerably lower rates for merchants in the EEA, also benefiting final consumers.
MIF levels are widely divergent between Member States. For consumer card transactions, their weighted average level ranges from between 0.1-0.2% to 1.4-1.5% in various Member States. In the VISA scheme, rules are in place that prevent retailers in 'high MIF' countries from benefiting from lower fees. Under these rules, even if a merchant chooses an acquirer in a different Member State, the acquirer is obliged to apply the fees of the merchant's country. This prevents retailers from benefiting from the internal market for payments in the same way as they are able to do for other products and services.
Visa's commitments could create positive dynamics in the internal market by allowing cross-border payment providers to apply lower rates in countries with high inter-bank fees. This could put significant pressure on domestic inter-bank fees and eventually lead to their reduction and harmonisation.
This can be illustrated by the following example: a large retailer with a turnover of €1 billion in each of 5 member states (France, Germany, Italy, Spain and the UK), 15% of whose payments are made by credit card in each of those countries, could save €4-5 million annually due to the reduced credit card fees.
How long would the commitments be in force?
Visa Europe has undertaken to observe the proposed commitments during four years. Its commitments on cross-border acquiring and international MIFs within the Visa Europe territory would, however, only enter into force from the 1st of January 2015.
What is the expected impact on merchants, consumers and banks of Visa Europe's proposed commitments?
The reduction of the interchange fees should lead to lower costs for merchants when receiving payments by card. The transparency measures proposed by Visa Europe should help to ensure that this works in practice.
Merchants normally pass on the merchant service charges, including MIFs, to their customers through higher prices for the goods and services they sell. Therefore, consumers ultimately pay the fees that banks charge merchants. This means that cardholders pay twice for card use: once to their bank and once through increased retail prices.
Even consumers who do not use a card but pay in cash are bearing these costs, as they are exposed to the same retail prices as cardholders. Very few merchants surcharge or rebate their prices to reflect the different costs of the means of payment and consumers are normally unaware of the true costs. This allows payment card schemes to raise their fees to levels where card payment is typically more expensive than non-card payment. In that case, a payment made with a card imposes a hidden cost on all consumers compared to a payment without a card.
It has been argued that lower MIFs may encourage banks to raise card holder fees. However, in practice this is unlikely to happen. For example, when the French competition authority accepted commitments offered by the domestic card scheme Groupement Cartes Bancaires in 2011, which substantially reduced interchange fees for domestic debit and credit card transactions in France, this did not result in increased card holder fees.
Experience (for example in Australia and Spain) shows that reducing fees for merchants encourages card acceptance by merchants and can lead to an increase in card transactions which leads to higher income for banks. It can also lead to fewer cash transactions, which impose significant costs on banks, and greater card use has many other benefits for banks besides the income from MIFs, such as interest payments on credit card balances.
What is the relevance of the proposed commitments for other payment schemes?
The proposed commitments are in line with the undertakings offered by MasterCard in April 2009 (see MEMO/09/143) as regards the MIF level. MasterCard also undertook to limit credit card MIFs to 0.3% and debit card MIFs to 0.2%.
The commitments from both MasterCard and Visa provide a benchmark for setting MIFs that appears to allow consumers and retailers to enjoy a fair share of the benefits they generate. Therefore, Visa Europe's commitments represent an important step towards the creation of a level playing field in the payments card market and in ensuring the success of the Single Euro Payments Area (SEPA).
What else is the Commission doing in this area? What is the relationship between the commitments and the planned legislation?
In parallel, the Commission has also been investigating MasterCard. In 2007, the Commission found the cross-border inter-bank fees set by MasterCard within the EEA were anticompetitive (see IP/07/1959 and MEMO/07/590). In 2009, MasterCard offered unilateral Undertakings to cap its debit and credit card MIFs at 0.20% and 0.30% respectively. The Commission has recently opened new proceedings against MasterCard to investigate inter-regional inter-bank fees and cross-border acquiring (see IP/13/314).
As announced in the Single Market Act II, the Commission intends to propose legislation on inter-bank fees for card payments, in complement to the Commission's antitrust enforcement.
The Commission's action under EU antitrust rules aims to ensure that European consumers are not harmed by anticompetitive practices as long as there is no EU-wide legislation on MIFs in force. The Commission's efforts on the legislative and antitrust sides are coherent and complementary.
What are the next steps?
Pursuant to Article 27 (4) of Regulation 1/2003, the Commission is consulting market players on the proposed commitments. To this effect, a summary of the proposed commitments has been published in today's EU Official Journal, inviting interested parties to present their comments. Comments must reach the Commission within one month of the publication of the market test notice (ie by 14 July 2013). If, following the results of the market test, the Commission reaches the conclusion that the proposed commitments are suitable to remedy its competition concerns, the Commission may adopt a decision pursuant to Article 9 of Regulation 1/2003, making the commitments legally binding on Visa Europe. The Commission's antitrust investigation would be closed with regard to Visa Europe.
The full version of the commitments is available on the Commission's competition website at:
The Visa Europe territory means the EEA, Andorra, Faroe Islands, Greenland, Israel, Monaco, San Marino, Svalbard and Jan Mayen Islands, Switzerland, Turkey and Vatican City.