EU Orders MasterCard Drop Certain Interchange Fees

European Commission regulators ordered MasterCard Inc. this week to drop the fees its charges for cross-border transactions or pay a daily fine of 3.5 percent of daily global revenues.

The Commission’s ruling covers transactions conducted with MasterCard-branded credit cards and the network’s debit cards that carry the Maestro brand in Europe. About 45 percent of all payment cards in Europe carry either the Maestro or MasterCard brand, the Commission reports. 

The Commission contends that the fees charged to consumers for transactions that they make in a different European country unfairly raise prices for merchants. The cross-border fees are also the default fees for all transactions made with a Maestro or MasterCard-branded card in Greece, Ireland, Italy and several other European countries.

MasterCard reported net revenues of $3.3 billion in 2006. Its European cardholders generated $126 billion in purchase volume in the third quarter this year, or nearly 30 percent of its worldwide volume.

The bank that issues a consumer’s card charges the firm that processes a transaction for a merchant a fee, called interchange, when the consumer uses the card for a purchase at that merchant. The interchange fee is set as a percentage of the purchase price. The processor typically passes the interchange fee on to the merchant.

MasterCard and its rival Visa set interchange fees. The Associated Press reported that Europeans make more than 23 billion card payments annually worth nearly $2 trillion.

MasterCard’s interchange fees range from 0.4 percent to 1.05 percent of the transaction value for its Maestro card, and from 0.8 percent and 1.2 percent for transactions conducted with its credit cards, according to the Commission.

Merchants contend interchange fees are unfairly high, raise their cost of doing business and are reflected in higher prices on their goods.

The MasterCard Europe division of the Purchase, N.Y.-based payments network said it would abide by the Commission’s ruling as it appeals the decision to the European Court of First Instance. MasterCard Europe argued that pricing shouldn’t be set by regulators but by the marketplace.

Brussels, Belgium-based MasterCard Europe oversees the network in 51 European countries. 

Neelie Kroes, a member of the EU Competition Commission, told the Associated Press that she planned next year to reopen an investigation of Visa’s interchange fees.