Monday, July 03, 2006

European Union Slams MasterCard® (click here)

Just days after MasterCard® thought they won a move on the legal game board they immediately issued a press release. This may have energized its public relations hacks. But, just as quickly, the credit card association was again shoved back by the latest European Union notice.

Even larger than Britain's Office of Fair Trade investigation, is the European commissions weight. The EU is now overshadowing and charging that MasterCard® and Visa® practice restrictive, anti-competitive fixing of merchant interchange fees that millions of retailers must pay for accepting its payment cards.

While MasterCard's® website crafted a lawyerly explanation how they and Visa® are "independent", remember, both have been owned by the same banks. With the wink of an eye, they are just as "independent" as two siblings with the same parents. But, this time they again stand accused of hampering competition between the banks.

Rarely have we encountered such a deliciously blatant media misstep as was their rush to hastily wipe their hands before getting sharply slapped again. MasterCard's® website posted a reply countering our assertion that we believe they practice illegal, collusive price-fixing by agreement.

The New York Times' Paul Meller (Sat, July 1) reported that if the European Commission "rules against MasterCard®, the company could be forced to end a transaction charge known as a cross-border interchange fee." This also raises another question about why interchange fees are not cost-based but are a fraction of the level paid by U.S. merchants.

We would think that fraud rates and technology disadvantages are greater in less developed nations. Yet, as reported in the NYT's, "in Europe, the fees range from 0.8 percent of the value of a transaction when it involves a card with a computer chip to 1.3 percent when it involves a signature-based transaction." The average rate in the U.S. is 1.70 percent. The new American Express®-branded bank cards is expected to be much higher.

[source: WayTooHigh commentary, with link to June 29, Reuters article]