Court's decision offers traders hope of relief from interchange fees

Court’s decision offers traders hope of relief from interchange fees

In a recent judgment, the UK Competition Appeal Tribunal (CAT) has ruled that the default Multilateral Interchange Fees (MIFs) set by Visa and Mastercard infringe UK and EU competition law. The Tribunal concluded that these default fees are anti-competitive by their very nature, amounting to a restriction of competition “by object”.

Background

The case concerns default MIFs - non-negotiable base fees set by Visa and Mastercard in relation to both credit and debit card transactions. These fees are paid by acquiring banks (those serving merchants) to card-issuing banks (those issuing cards to consumers) and are ultimately passed on to merchants, including retailers, through the Merchant Service Charge.

The case formed part of the Umbrella Proceedings, which were initially issued in July 2022 to allow for cases with similar characteristics to be grouped together and effectively streamline the litigation. 

The crux of the retailer’s argument was that the default MIFs restricted competition in the acquiring market. Rather than allowing banks to compete freely over the level of interchange fees, Visa and Mastercard set these rates multilaterally, creating a price floor that artificially inflates costs for retailers. In doing so, the retailers argued, the schemes prevented downward pressure on fees and hindered effective price competition between acquiring banks.

The Judgment

The CAT ruled in favour of the retailers, finding that Visa and Mastercard’s default MIFs amount to a restriction of competition by object under Article 101(1) of the TFEU and/or the Chapter I Prohibition of the Competition Act 1998. This means that the fees were deemed inherently anti-competitive, without the need to demonstrate actual market effects.

The tribunal found that the default MIFs removed pricing freedom from acquiring banks, limited interbank competition, and resulted in elevated fees for retailers. The consequence was an elevated cost structure borne by retailers, contrary to the principles of free market competition.

Arguments advanced by Visa and Mastercard included that MIFs were necessary for the operation of a balanced and secure digital payments ecosystem and that they generated benefits that outweighed their restrictive effects. The CAT held that Visa and Mastercard failed to demonstrate that the purported justification met the required threshold and rejected the proposed counterfactual as “so unrealistic as to be wrong to adopt”. 

Notably, this decision applies to both regulated and unregulated MIFs, including commercial card and inter-regional transaction fees. These categories have historically remained outside the scope of fee caps introduced under the Interchange Fee Regulation. 

Next steps

The proceedings are ongoing, with the tribunal still to publish the decision on the second trial phase which focused on pass-on, i.e. whether retailers absorbed the unlawful fees or passed them on to consumers through higher retail prices.

Both Visa and Mastercard have indicated their intention to seek permission to appeal the CAT’s findings, with a representative for Mastercard referring to the decision as being “deeply flawed”.