The European Commission’s decision today to accept proposed commitments from Visa Europe on its multilateral interchange rate for intra-regional debit transactions in the European Economic Area illustrates the card association’s willingness to help advance the mission of the Single Euro Payments Area, albeit belatedly, some analysts believe.
Visa Europe already was under pressure to make the same concessions on debit interchange MasterCard Worldwide announced last year. “This is one of those things they’ve decided to go along with because it’s tolerable for them,” Megan Bramlette, managing associate for Westbury, N.Y.-based Auriemma Consulting Group, tells PaymentsSource.
Last April, five days after MasterCard agreed to its concessions, the commission announced it had sent a formal objection to rival Visa Europe, accusing Visa of engaging in anticompetitive practices. Visa’s cross-border interchange rates serve to “harm competition between acquiring banks, inflate the cost of payment card acceptance for merchants and ultimately increase consumer prices,” the commission charged in a statement.
The commission had opened a formal investigation into Visa’s interchange and other rules in March 2008, and the statement of objections ratcheted up of the pressure.
MasterCard continues to pursue its appeal in the European Court of First Instance against a commission ruling in December 2007 that its cross-border interchange rates violate antitrust rules. Until the appeals court decides, perhaps by later this year, MasterCard has agreed to lower its interchange on cross-border debit transactions to 0.2% of the sale and for credit transactions to 0.3%. These rates determine how much merchant acquirers pay card issuers on cross-border transactions. Acquirers pass the fees on to merchants. The rates for debit previously ranged from 0.4% to 0.75% and for credit 0.8% to 1.9%.
A negotiated agreement between the commission and Visa had lowered average interchange rates on Visa cards to a reported 0.7%, but the agreement expired in 2007.
Under its commitments announced today, Visa Europe will cap its weighted average intra-regional interchange rate for debit transactions at 0.2% of the sale for four years. The same cap will apply to domestic debit rates that defaulted to the intra-regional multilateral interchange rate before March 10, 2009, and continue to do so, and to domestic debit rates Visa Europe sets directly.
The proposed commitments do not affect credit, deferred debit or commercial rates, Visa Europe President and CEO Peter Ayliffe noted in a statement.
At least one merchant organization disagrees with the European Commission’s acceptance of Visa Europe’s commitments.
EuroCommerce, a trade group for Europe’s retail, wholesale and international trade sectors, contends the commission’s compromise is a major blow to retailers and consumers already struggling in a weak economy. “At a time when consumers are fighting to keep their heads above water, this lackluster compromise sets a very bad precedent for this tax on payments for consumers,” Xavier Durieu, EuroCommerce’s secretary general, said in a statement.
Zilvinas Bareisis, a senior analyst at the banking research firm Celent, disagrees with EuroCommerce and believes the commitments help balance the system of cross-border debit card transactions. “With the general trend of debit card use continuing to grow,” Europe will experience more cross-border debit card transactions, Bareisis adds.
EuroCommerce also argues there is no justification for omitting credit cards from the settlement. “Both types of transactions require the same processing; therefore, they should attract the same cost,” the organization said in a statement.
EuroCommerce last year lodged a complaint with European competition authorities over costs associated with accepting Visa-branded payment cards. The group noted at the time neither Visa nor MasterCard had been able to justify their interchange-pricing methods.
The group prefers a fixed-rate pricing scheme for card transactions, not interchange rates based on the purchase amount.
Visa Europe trumpeted today’s settlement as a victory for SEPA.
“The proposed commitments on immediate (nondeferred) debit interchange fees are an important step towards the achievement of Single Euro Payments Area and the continued displacement of inefficient cash transactions in Europe,” Ayliffe noted in a statement. “It will provide much needed legal certainty to the industry and provides a mechanism for a revision to the average 0.2% rate if further data become available on the costs of different means of payment, including cash. I am satisfied that these commitments will lead to the establishment of a suitable cost of cash methodology, which can be applied both on a cross-border and a domestic basis.”
Bramlette agrees the cap is “in the spirit” of what SEPA is trying to accomplish. SEPA is an initiative the European banking industry launched in 2002 to link European Union and other euro-based countries’ separate national payment systems into a standardized system. That task is supposed to be complete in December 2012, which gives the European Commission time to ask for more concessions, analysts note.
“The commission retains the right to come back later and ask for more [commitments from the card brands],” Bareisis says. At least the brands have shown a willingness to comply, he adds.