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Neelie Kroes

European Commissioner for Competition Policy

MasterCard cuts fees

Introductory remarks at press conference
Brussels, 1st April 2009

Good morning ladies and gentlemen.

I am happy to announce that MasterCard has undertaken to cut its original Multilateral Interchange Fees (or MIFs) for cross-border card payments in Europe and to repeal its recent scheme fee increases for cross-border transactions. Moreover, MasterCard has also agreed to introduce certain changes to its system that increase transparency and efficiency in the payment cards markets.

This will mean lower charges for retailers accepting payment cards, which should in turn be passed on to consumers, both those paying with cards and those paying cash.

Let me remind you that the Commission took a decision in December 2007 that found MasterCard's MIFs to be in breach of EU antitrust rules.

With the changes I have just mentioned, and assuming these commitments are kept, I see no further need to pursue MasterCard for infringing the antitrust rules. This applies to both the 2008 scheme fee increases and the reintroduction of a MIF.

So-called MIFs are fees that banks, which are members of the MasterCard scheme, collectively agree to charge each other. The fee is passed on to retailers and, ultimately, consumers. In theory the purpose of this is to give each bank an incentive to issue and promote payment cards. However in practice these fees simply became a hidden source of revenue for the banks. MasterCard could not justify their level with any solid methodology, or explain what, if any, efficiency gains were being passed on to merchants and consumers at the end of the day.

After intense discussions over recent months, MasterCard has given three main undertakings, effective as of July this year:

1. It has offered to cap the weighted average cross-border MIF for its consumer credit card transactions at 0.3% and at 0.2% for its consumer debit card transactions. In both cases the new MIFs are less than half the previous MIFs. Under the old system the fees were between 0.8% and 1.9% for credit cards, for example.

This means that if you spend 100 euros with a payment card in another Member State, the merchant will be charged a fee of on average 30 cents as opposed to up to one euro and ninety cents in the past.

Essentially the agreed MIF corresponds to the benefits enjoyed by retailers of accepting payment cards, for example by not having to handle cash.

According to MasterCard these rates will become the lowest MasterCard MIF rates in the world. This is proof of the benefits of strong competition policy for the European economy.

2. MasterCard is repealing related price increases that it made in October 2008. In plain English, this means MasterCard is removing fees it introduced to plug the gap created when it temporarily withdrew its cross-border MIFs to comply with our 2007 decision. Those fees were strongly opposed by merchants and they will now go.

3. MasterCard is introducing more flexibility and transparency into its rules. For example:

  • Banks will have to offer merchants more detailed and accurate pricing and billing for the different payment cards
  • Merchants will be made aware they can choose to accept debit cards on their own, separately from more expensive credit cards
  • There will be more scope for banks to compete when providing card services to merchants.

Increasing transparency in these ways allows more effective market signals to be sent about the real costs of payment methods. That, in turn, means all parties can now better decide if those costs are worth the benefits.

So both merchants and consumers will win from these clear and simple changes. The changes also provide a clear precedent for other payment card providers to be aware of in setting their MIFs. The industry has been telling us for a long time that they need greater clarity on how to set their MIFs in a way that is compatible with the competition rules. Today that clarity is provided. And I sincerely hope that all involved in this industry will be able to take account of our approach.

Some have wrongly interpreted our 2007 Decision as prohibiting all MIFs, but I want to make crystal clear today that under certain circumstances, reasonable MIFs can be compatible with the competition rules.

I am particularly satisfied that today's changes come at a moment where we need increased efficiency in the banking sector, and when lower costs for merchants and consumers can be a real help out of the crisis. As the banking sector knows very well by now, its future must lie in transparent, sustainable behaviour and services that offer clear benefits to its customers.

To give two final elements of perspective to today's announcement:

1. Last week the Commission and the European Central Bank announced that they do not see a long-term future for MIFs in the Single Euro Payments Area direct debit system. A direct debit is where a payment for a certain service is automatically deducted from a bank account. This is based on a different relationship to that of card transactions. There does not need to be a MIF for direct debits in order for all parties to benefit from the relationship – other incentives can be applied.

However, there are important differences between direct debit transactions and card transactions: Direct debit mandates are given for a long period and companies can reward their clients for their willingness to facilitate payment by using this instrument. Card transactions are however one-off and a merchant has very little possibility to encourage consumers to use the right payment instrument. A MIF can therefore be justified if it is transparent and based on an appropriate methodology.

2. I would also like to remind you that we are currently investigating Visa's business practices. I have no intention that today's announcement will allow Visa to benefit at the expense of MasterCard – we are determined to keep a level playing field in these markets.

But most importantly the aim of the new MIFs to be applied by MasterCard is that a merchant's costs in accepting card payments should be no higher than the benefits from avoiding receiving cash. If this goal can be met we will see a bigger and better market for payment services in the future. The higher standards we have set through these negotiations will ultimately benefit everyone in the market, MasterCard included.

Europe is rapidly making the transition from notes and coins to plastic money. That journey is about efficiency and convenience for both consumers and retailers and moving towards a truly Single Market for payments. Today's announcement is the next step in that journey by ensuring that charges are directly related to the benefits of using payment cards and by ensuring transparency.

Finally I would like to mention another very significant and practical step towards improving the Single Market for payments to the benefit of consumers and businesses internal market, namely the SEPA Direct Debit system. Yesterday, the EPC voted by a large majority to launch the system, which is very good news.

The SEPA direct debit system will make it easier to pay regular bills in another country from your home country bank account.

I look forward to taking your questions.

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