Could the EU Ruling on Interchange Fees Be Good News for Retailers Doing Business Across the Pond?
A recent EU General Court ruling has deemed the fees a merchant is forced to pay to its acquiring bank in a transaction unacceptably high due to the interchange fees and the fact that MasterCard has unfairly inflated the service fees paid by retailers for processing payments. As a result, both MasterCard and Visa are being investigated for possible antitrust violations. Already five of the largest U.K. retailers, including Next Retail and Wal-Mart's Asda, have filed lawsuits in London against MasterCard.
How does this ruling affect retailers who are or are planning to do business in Europe? Could it ultimately lead to a reduction in operating costs? Let's take a look at what an interchange fee is, what the current controversy in Europe entails and what this ruling could mean for cross-channel retailers doing business overseas.
What's an Interchange Fee?
An interchange fee is a fee paid between banks for the acceptance of card-based transactions. It's a fee that a merchant's bank (i.e., the "acquiring bank") pays a customer's bank (i.e., the "issuing bank"). Depending upon the industry, a merchant pays between 1 percent and 3 percent in service fees to the acquiring bank for every credit card payment it receives. This service fee includes an interchange fee, varying between 0.3 percent to 2 percent, which the acquiring bank has to pay to the issuing bank that provided the cardholder with their credit card. The exact interchange fee depends upon the industry, type of card, type of transaction and how card data is delivered.
Why the Controversy?
This has been an issue globally for some time. Even in the U.S., where it's been investigated and settled, disagreement around interchange fees continues, and it remains a high concern for anyone doing business in Europe.
The EU Court found that MasterCard interchange fees for European cross-border payments have been much too high and, due to its strong market position, this is an antitrust issue. This decision will also have an effect on outstanding domestic European lawsuits with Visa.