MASTERCARD IS to reduce sharply fees on cross-border credit card transactions in a deal with Europe’s antitrust authorities. In return, Brussels will stop pursuing the company over allegations its fee structure breached European competition rules.

But the deal was met with lukewarm support from retailers, with some calling it a “weak compromise” by Neelie Kroes, Europe’s competition commissioner, and others saying it should be a “first step” only.

Mastercard, too, insisted the deal was an “interim arrangement”, and said it still intended to pursue its court challenge over the European Commission’s 2007 decision, which found the interchange fees (MIFs) that Mastercard charged on cross-border transactions were illegal.

Interchange fees are those paid between banks servicing shops that accept credit and debit cards and those servicing cardholders.

Under yesterday’s deal, Mastercard’s average interchange fee charged on consumer credit card transactions will fall to 0.3 per cent, and on consumer debit cards to 0.2 per cent.

According to Ms Kroes, that is less than half the level ahead of her 2007 decision; fees then were between 0.8 per cent and 1.9 per cent for credit cards, for example.

Mastercard has also agreed to repeal other fees and increases that were introduced in October to “plug the gap” when it temporarily withdrew interchange fees altogether on cross-border transactions, to avoid heavy daily fines.

Finally, the card company will introduce more “flexibility and transparency” into its rules. A trustee will also monitor adherence to the agreement.

“The aim of the new MIFs . . . is that a merchant’s costs in accepting card payments should be no higher than the benefits from avoiding receiving cash,” said Ms Kroes.

“I want to make crystal clear today that, under certain circumstances, reasonable MIFs can be compatible with competition rules”.

But Mastercard insisted the new fee level was too low to sustain strong competition in the payments industry or encourage investment: “This is why these rates are only interim, and why we are pursuing our appeal to the European Court of First Instance.”

Because national competition authorities have also been looking at the legitimacy of interchange fees on domestic card payments, the battle between Brussels and Mastercard has significant potential implications. Yet by refusing to concede any legal principles, Mastercard has in effect limited the impact.

“There’s no connection between what we’ve agreed with the commission and cases within domestic markets,” it said yesterday.

Brussels has also been in talks with Visa Europe over its fees. Brussels is likely to want a level playing-field between the two groups, and the Mastercard deal may set the benchmark. – (Financial Times service)