Brussels challenges Visa on card payment agreements

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The Independent Online

Visa International was yesterday squaring up for a costly legal battle with the European Commission after a ruling that its credit card payment agreements may breach anti-trust rules.

Visa International was yesterday squaring up for a costly legal battle with the European Commission after a ruling that its credit card payment agreements may breach anti-trust rules.

Mario Monti, the European Commissioner for competition, confirmed yesterday that he had sent a written statement of objections about the interchange fees that it insists banks must levy on retailers in return for processing credit card payments.

The move, which is the first serious legal challenge to the virtual stranglehold the US based organisation has over the European credit card market in nearly a quarter century, comes as Visa and its rival Mastercard prepare to do battle with the US authorities in a case that could lead to the break-up of their duopoly in the United States.

A US Federal Judge is expected to rule later this month on a case brought by the US government, which maintains that the two credit card organisations have colluded to stifle innovation and competition.

Mr Monti's letter follows a complaint earlier this year from Eurocommerce, a European retailers trade body, which claims that current arrangements are anti-competitive.

Justifying his decision at a press conference in Brussels yesterday, the European Commissioner said: "Consumers must be free to use cards to pay for their purchases. But merchants [retailers] ought not to be forced de facto by the card companies and the banks to foot the bill for transactions made with cards." Wynold Verway, a policy adviser for Eurocommerce in Brussels, said that the association believed that only 20 per cent of the current interchange fee is accounted for by the economic cost of handling credit card transactions. The remaining 80 per cent is clear profit. "It is a tax," he said.

The level of the interchange fee varies from 1 per cent in the UK to up to 5 per cent elsewhere in the EU.

Visa said yesterday that it intends to contest the Commission's preliminary findings. Philippe Menier, chief operating officer of Visa EU, said: "We are confident that the interchange fee will ultimately be upheld as favouring both competition and the consumer".

Visa believes that an adverse ruling may have implications for other payment systems. In the UK earlier this year, there was a row between the major banks over the level of interchange fees within the Link cash machine network

Under EU rules it is entitled to seek a hearing with the European Commission before a final ruling which is legally binding. A Visa spokesman pointed out that the existing agreements had been in force for 23 years and no objection has been raised before.

He also pointed out that on another count the European Commission had found in favour of Visa. This related to a complaint by Eurocommerce about Visa's non-discrimination rule that forbids participating retailers from offering discounts to customers who opt to pay cash rather than credit card.

Visa maintains that the main cost element in the charges levied by banks on retailers is not the interchange fee but merchanting commissions, which are levied directly by the banks on retailers and over which Visa has no control.

Visa had also complied with EU rules requiring its agreements to be pre-notified for anti-trust clearance.

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