Mastercard Incurs $650M Penalty Over Breaching E.U.’s Antitrust Rules

The European Commission, the EU’s politically independent executive arm, has levied a €570 million fine to Mastercard over breaching the EU’s antitrust rules by blocking retailers from accessing cross-border card payment services offered by banks in the Single Market.

As detailed in the European Commission’s press release published January 22, a penalty of over €570 million equivalent to approximately $650 million has been imposed on Mastercard for obstructing merchants from seeking other alternative card payment services from banks operating within the European Internal Market.

Explaining the commission’s sanction, commissioner Margrethe Vestager underscored that:

“European consumers use payment cards every day, when they buy food or clothes or make purchases online. By preventing merchants from shopping around for better conditions offered by banks in other Member States, Mastercard’s rules artificially raised the costs of card payments, harming consumers and retailers in the EU.”

Mastercard is the second largest multinational financial services corporation in the European Economic Area (EEA) in terms of transaction volume and card issuance. Through Mastercard and its multi-national debit card service Maestro, the company allows banks to provide payments-related services, with Mastercard serving as a financial platform through which cardholders are offered payment cards by a number of issuing banks, ensuring the completion of card payment transactions as well as fund transfers to the merchant’s bank.

As it stands, credit and debit card payments account for over half of the European consumers’ and merchants’ non-cash payments transactions, making the payment card industry a major player in the European Common Market for domestic, overseas, and online payment transactions.

Generally, when consumers use debit or credit card for making purchases either online or from shops, the merchant’s bank or “acquiring bank” settle an “interchange fee” to the cardholder’s bank or the “issuing bank.” This fee is then passed from the acquiring bank to the merchant and is finally included in the prices of products.

As indicated in Mastercard’s rules, acquiring banks are required to charge the interchange fee set by the region from which the merchant is running its business operation. Prior to the implementation of the Interchange Fee Regulation that has since set a cap in 2015, territories within the EEA impose varying interchange fees, creating an imbalance between merchants headquartered in the EU Member States that impose high interchange fees and those operating in countries where interchange fees are much lower.

In April 2013, the European Commission has initiated an antitrust investigation against Mastercard to determine whether the company’s existing rules on interchange fees are in violation of the EU’s antitrust regulations. After two years of investigation, the Commission ultimately concluded that Mastercard’s rules had breached the Interchange Fee Regulation.

As the Commission detailed in its Statement of Objections issued July 2015, Mastercard’s prevailing rules vis-à-vis “cross-border acquiring” inadvertently altered the interchange fees for card payments contingent on the merchant’s business location, resulting in limited cross-border competition as well as artificial segmentation of the Internal Market.

It is on this ground that the Commission concluded that Mastercard has infringed the EU’s antitrust rules. As a result, on top of imposing a fine in accordance with the E.U.’s 2006 Guidelines on fines, Mastercard was also mandated to amend its “cross-border acquiring” rules in line with the Interchange Fee Regulation, to which the company complied.

In return for the company’s cooperation, the Commission subsequently granted Mastercard a 10% fine reduction.