Tuesday, December 05, 2006

Sixty-percent Rate Cut in 2008 by MasterCard Europe (Commentary, WayTooHigh.com, via WSJ)

Those are some rich margins!

Imagine if you owned a retail shop and announced that you were slashing prices by 60 percent? It would mean one of two things; either your merchandise did not sell during the holiday season, or you are preparing to close shop. In the case of MasterCard Europe®, their announced 60% interchange fee reduction on Maestro® debit card payments made in the euro zone certainly does not suggest a weakened company. Instead, it enhances the argument that interchange fees currently are way too high. They are way too high in Europe, they are way to high in Asia, they are way too high in Australia. They are way too high across the globe, especially in the U.S., which faces among the steepest interchange fees for any leading industrialized nation.

However, before consumers and merchants in Europe prepare to celebrate, according to The Wall Street Journal Reporter, Anne Jolis, the lowered bank fees are more than a year away.

How many more billions will be generated until the fee reduction takes hold in January 2008?

Why the delay of a year?

We assume that Visa International's® legal and public relations teams are speedily preparing a similar announcement as both card associations share many of the same member banks.

With no PIN-based debit card interchange fees in Canada, it seems that MasterCard has room for enhancing the rate reduction by another 40 percent.

If the gas companies can lower and raise prices at the pump with the flick of a switch, the banking cartel surely can lower rates now. Why wait until 2008?

Why cut interchange fees by 60% only on debit-cards and not on credit cards? Remember, MasterCard and Visa® encourage cardholders to posses debit cards, but use it at the much higher interchange fee structure that accompanies credit cards in order to validate their sweepstakes and other contest schemes.

Does this mean that MasterCard Europe will spend the next year encouraging those with debit cards to instead use the cards as traditional credit cards and thus bill merchants at the much higher rates?

And, the biggest question: Why only cut debit card fees by 60 percent in Europe?

We sense this appeasing concession by MasterCard Europe is designed to partly placate the expected ruling by the European Commission. While MasterCard Europe's white flag is hoisted in the air, the two leading card associations' alleged price-fixing transgressions have already occurred. Moving forward, this is a nice first step, but their pricing scheme and restraints on competition have a long history of alleged antitrust violations.

As reported in
The Wall Street Journal (Dec 5, Page E2), "The commission says MasterCard Europe and its Maestro debit card account for about 45% of all payment cards issued in Europe. In 2004, a total of 23 billion payments, with a value of €1.35 trillion, were made in the EU with credit and debit cards."

[Commentary: WayTooHigh.com, via WSJ]