EU tells MasterCard to overhaul fees

MasterCard has six months to overhaul its fees for cross-Europe card transactions or incur significant fines after the charges were ruled illegal by the European Commission yesterday.

An investigation found that MasterCard's multilateral interchange fees (MIFs) on MasterCards and Maestro cards inflated the cost of card acceptance by retailers without leading to any advantage for consumers or retailers. This violates European Union rules on restrictive business practices. MasterCard risks fines of 3.5 per cent of its global daily turnover if it fails to comply with the verdict.

MIFs are charges levied on cross-border payments when a card payment is processed, and are typically paid by the bank of the retailer to the bank of the cardholder.

Neelie Kroes, European commissioner for competition policy, said: "A MIF should contribute to objective efficiencies such as to promote more efficient payment means to the detriment of less efficient ones. The proceeds should not just increase bank's revenues they should be clearly dedicated to the achievement of efficiencies."

Kevin Hawkins, director general of the British Retail Consortium, said: "MasterCard has clearly been abusing its position to bolster its bottom line and retailers and their customers are bearing the cost."

MasterCard plans to appeal. It said: "Market forces, not regulation, should drive key decisions such as the setting of interchange fees."