A busy fortnight for card interchange
The last two weeks have seen significant developments for payment card interchange, with important practical implications for the payments industry. Here's a summary of what has been happening lately.
The European Commission (the Commission) has opened a consultation on commitments offered by Visa and Mastercard in respect of inter-regional interchange fees. The commitments would apply to payments made in the EEA with consumer debit and credit cards issued outside the EEA, in order to bring its investigation into these fees to a conclusion.
The commitments offered, which would apply for 5 years and 6 months, would reduce inter-regional fees by at least 40%, by applying the following caps:
- Card present (CP): 0.2% / 0.3% of the value of the transaction for debit / credit cards respectively; and
- Card not present (CNP): 1.15% / 1.5% of the value of the transaction for debit / credit cards respectively.
The CP caps bring the position for inter-regional fees into line with the EU's Interchange Fee Regulation (IFR) (for intra-EEA and domestic Member State transactions). The higher caps for CNP transactions appear to reflect an acknowledgement, by the Commission, of the higher fraud risk involved where a payment is made remotely into the EEA using a card issued outside. Neither the IFR, nor these latest commitments, seeks to cap transactions involving a card issued in the EEA, being used to make a payment outside the EEA.
The commitments are light on detail. Rather than operating as an extension of the IFR (and the provisions it contains around anti-circumvention), the Commitments seek to operate on a standalone basis, for example simply stating that the parties "shall not circumvent or attempt to circumvent these Commitments". The parties have, however, agreed to appoint a Monitoring Trustee to monitor their compliance and report to the Commission.
Honour all cards
Mastercard also announced it now expects to receive a Commission decision imposing a fine in relation to "a legacy point of sale merchant rule". This appears to be a reference to the "honour all cards" rule, under which schemes previously obliged merchants to accept all types of cards. Today, the IFR prohibits the "honour all products" aspect of the "honour all cards" rule.
Interchange fees following Brexit
HM Treasury has published draft interchange fee regulations to "onshore" the IFR, to reflect the UK's departure from the EU. The changes made by the UK regulation would come into effect on 29 March 2019 if the UK leaves the EU on that date without agreement with the EU (a "no-deal Brexit"), but will not take effect on that date if the UK leaves the EU under the terms of the Withdrawal Agreement with the EU and enters a transitional period.
If the draft UK regulations come into effect, the intra-EEA fee caps in the IFR would cease to apply to the UK. The draft regulations provide for the continuation of the fee caps, but with a reduction in scope from EEA-wide application to UK only. This means that, whilst the fee caps will continue to apply to transactions that take place solely within the UK, scheme operators would be free to set higher interchange fees for cross border transactions between the UK and the EU/EEA. Transactions involving a UK issuer and an EEA merchant, however, would be capped under the new inter-regional commitments, once formalised.
HM Treasury would be able, through further regulation, to set lower caps for domestic UK interchange. The PSR will be responsible for making and amending relevant regulatory technical standards, for example on the requirements for separation for card schemes and processors, and for monitoring and enforcing compliance.
UK interchange fee litigation
Three significant developments are worth a mention:
- the Supreme Court (SC) has given Mastercard and Visa permission to appeal the July 2018 Court of Appeal (CA) decision in respect of historic damages claims for interchange overcharge in the EU. The CA ruled that intra-EEA MIFs were unlawful. Our briefing on that judgment is available here.
- Deutsche Bahn reached an agreement to settle its claim with Mastercard, two days before its appeal (seeking to backdate its claim by an additional 2.5 years) was to be heard in the SC.
- the CA has confirmed that it will hear an appeal by Walter Merricks against the CAT's July 2017 decision to refuse a collective proceedings order (CPO). The CPO would have allowed Mr Merricks to bring a damages claim against Mastercard on behalf of a class of card users. See our briefing on the CAT judgment here. The CA decision revives the prospect of an "opt-out" claim going ahead.
We shall continue to update you on antitrust-related developments on interchange. If you would like to discuss any of the above or related issues please get in touch with one of our team.