MasterCard Inc., in a conference call today to discuss the European Commission's proposal to cut card fees paid by retailers, says it supports increasing competition but warns the proposed regulation could have unintended consequences.
The proposal to cap interchange at 0.2 percent for debit cards and 0.3 percent for credit cards would slash interchange charges by 6 billion euros ($8 billion) a year. It calls for a separation between the card brand and the processing business and would prohibit card networks from restricting issuers from putting competing brands on credit or debit card products.
"We believe the separation component of the proposal is attempting to [solve] a problem that does not exist within our network," says Javier Perez, president of MasterCard Europe. MasterCard does not bundle its branding and processing and there are separate charges for each, he says.
"We are pleased that the EC is thinking about a level playing field for all parties," Perez says. "What we object about this is the fact that [the proposed legislation could be a way of] loading all the costs onto the consumer the cost of transaction should be borne by both sides."
The EU, by contrast, expects its proposal would lower prices for consumers. "New players will be able to enter the market and offer innovative services, retailers will make big savings by paying lower fees to their banks, and consumers will benefit through lower retail prices," Joaquin Almunia, the EU antitrust chief, said July 24.
But, Perez predicts, the competitors will remain the same while gaining access to new markets, says Perez. Demonstrating that MasterCard has steep competition, he says, "We process less than 50% of all transactions that are initiated by the MasterCard brand in Europe."
If the proposal increases competition in Europe, "We are a player that's well positioned and indeed we will continue to compete," Perez says. The proposal "opens opportunities to continue with brand revenue but increase out processing services and in turn our processing revenue."
MasterCard has faced similar pressure on interchange fees before. In the U.S., debit-card interchange was recently reduced by legislation, notes Noah Hanft, general counsel, corporate secretary and chief franchise integrity officer at MasterCard.
"MasterCard is successful in the market not because of interchange but because we are providing some benefit to clients that are frankly better," Perez says.
MasterCard as well as consumer and small-merchant groups will continue to speak with both the European Parliament and the Council of Ministers. The proposal will likely be amended, says Perez, but that process would take time.