Mastercard, American multinational financial services company has been fined for 571 million euros by the European Commission for breaching its antitrust regulations. The company was fined for artificially raising the payment processing fees which lead to higher prices for consumers and retailers. The penalty which was announced on 22 Jan 2019 by the European Commission was ordered after a six year long investigation into MasterCard’s business procedures by antitrust regulators.
Mastercard’s principal business is to process payments between the card issuing banks and the merchant’s banks. Mastercard acts as an intermediary-cum-payment processor between different banks for efficient electronic transactions. When a consumer buys some product from a merchant by using credit/debit card, the merchant’s bank pays a specific fee to the cardholder’s bank. This interchange fee is passed on to the retailer and further to the consumer which affects the prices of the purchased goods.
According to the investigation by the Commission, Mastercard forced retailers to use banks in their home countries for processing of payments which restricted their freedom to shop for lower fees from banks in other EU member countries. The retailers passed the interchange fees to the consumers forcing them to pay more for the purchases. As per the Mastercard’s enforced rule, even if some merchant opted for a foreign bank with lower rates, those rates didn’t apply.
Margrethe Vestager, EU’s competition commissioner said in her statement that Mastercard’s rule prevented merchants from shopping for lower fee charging banks in other EU member countries, harming retailers and consumers by artificially raised rates. This also effected healthy competition between banks for lowering fees.
Master did not contest the penalty and said in its statement that it has long ago dropped the controversial practice. The company added that the rule was practiced only for a historic but a very limited period of less than two years. It will not prompt any modification in their current business practices which are in full compliance of EU antitrust laws, the statement said. Mastercard said that the fine levied is consistent with the estimated charge that have to paid as disclosed in the 2018 fourth quarter report. The commission said that it has reduced the fine by 10% in appreciation for the full co-operation shown by Mastercard in the investigation process.
EU has taken several initiatives to curb the payment processing fees charged by financial companies. In 2015 it introduced a regulation which capped the maximum interchange fees between different banks in European Economic Area. The fees cannot exceed 0.2% of the value of transaction in case a debit card is swiped and 0.3% in case of credit card.