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Bankruptcy

: Credit Slips

Interchange Fee Settlement

By Adam Levitin

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MasterCard settled a lawsuit brought by the European Commission's Directorate General for Competition, which alleged that MC (and Visa's) "Multilateral Interchange Fee" (MIF) an interbank fee for cross-border transactions in Europe (basically good old US interchange) was anticompetitive. While the settlement allows MC to keep charging an MIF, MC agreed to drop the weighted average of the fee from between .8% and 1.9% to .3% for credit cards and .2% for debit cards. As the Commissioner for Competition Policy noted, "MasterCard could not justify their level with any solid methodology, or explain what, if any, efficiency gains were being passed on to merchants and consumers at the end of the day." Visa has not settled in the litigation.

MasterCard's MIF was always much lower than US interchange, which is somewhere upwards of 2.0% (and that's not the full merchant discount fee, just the interchange component). But now we see that MasterCard has decided that it can survive by charging just .3% interchange on credit cards in Europe. So why are American merchants going to pay seven times as much in interchange for credit card transactions? Are American banks or merchants seven times riskier? Or is US antitrust law just seven times weaker?

Full post as published by Credit Slips on April 07, 2009 (boomark / email).

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