Retailers in Europe and beyond are applauding the European Commission's (EU) ruling against Mastercard, which gives the credit card company six months to come up with a new system to apply interchange fees on cross-border purchases or face daily fines up to 3.5 percent of sales.
The ruling is seen as a victory for retailers who have argued that the cost paid by businesses for interchange fees results in higher prices for consumers.
Sir Terry Leahy, Tesco's chief executive, told The Guardian, "Tesco pays about £100m in fees to the banks for processing credit and debit cards - that's £100m we haven't been able to invest in price, range or service for our customers." he said.
Neelie Kroes, competition commissioner for the EU, told the paper, "Consumers foot the bill, as they risk paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices paid not only by card users but also by customers paying cash."
Not everyone, however, agrees with the ruling, arguing instead that capping or making other changes to limit interchange fees ultimately results in higher fees consumers must pay to obtain cards.
Mastercard plans to appeal the EU's decision.
Discussion Questions: What is your take on interchange fees? Are they excessive as most retailers and their industry groups charge? Is governmental action necessary to address this situation or should it be left to market forces to settle it?
[Author's note] Here are a couple of quotes from Tim Hammonds, president and CEO of the Food Marketing Institute, from a Dec. 4 press release.
"This (Universal Default interest rate increases) is but one example of the hidden, egregious ways that Visa and MasterCard bilk consumers and businesses out of billions of dollars each year. The most costly scheme by far is the interchange fee that card companies extract from each and every plastic transaction."
"FMI joins all retailers in urging Congress to continue scrutinizing interchange fee abuses and all excessive and unwarranted credit card rates and charges. Once we shine the light of disclosure on these practices, we can pursue solutions for consumers and retailers."