MasterCard Seeking To “Be Free To Set Any Fees We Want.” Shudder

Written by Evan Schuman
July 8th, 2013

MasterCard is involved in an intense battle with the highest European Union court, with the brand begging for the court to overturn a decision that would sharply limit interchange rates MasterCard could charge throughout the continent. On the surface, that seems like exactly what one would expect from MasterCard. And it was, until we saw an unusually candid statement from its chief counsel.

MasterCard lawyer Thomas Sharpe argued to the Luxembourg-based court that “the effect of the commission’s decision is to require MasterCard issuers to continue to provide valuable services to merchants such as guaranteeing payment to them without being able to recover any revenues from those merchants for those services,” according to a Bloomberg reporter who attended the hearing. But in an interview right after the hearing, another MasterCard lawyer, associate general counsel Carl Munson, said, “If we win this case, we would be free to set any fees we want.” (No need to call your physician, Mr. Retailer. That involuntary shudder is quite normal.)

Part of the problem is that MasterCard—and the same is obviously even more true for Visa—has a marketshare that makes it extremely difficult to refuse to accept the cards. From the retail perspective, that puts the onus on the brands to make a reasonable profit and to not gouge, to not profiteer. From the brand’s perspective, as said by a different MasterCard attorney, Bernard Amory: “MasterCard must act in the interests of its shareholders.” In other words, to generate as much profit as possible.

In retail, that’s always the goal, with the pragmatic limitation that shoppers can easily go elsewhere if they think the prices are too high. But retailers have no such option—on a practical—with the card brands.

That’s the essence of the monopoly argument that is being played out in multiple courtrooms these days, with various jurists deciding aspects of interchange limits. But MasterCard is adding a new layer, saying that it is no longer is controlled by the banks ever since it went public. A lawyer for the Lloyds Banking Group said MasterCard barely consults with them any more: “Not only do the banks play no part whatsoever in the decisions since the IPO, but there’s also no commonality of interest. MasterCard simply makes these decisions and announces them to the Lloyds banking group and other issuers.”

No commonality of interest?, Mr. Lloyds Banking Group? Let’s set aside for the moment that you have officially joined MasterCard’s appeal (along with HSBC Holdings and the Scotland Group), which sounds like a bit of a commonality of interest right there. You have no interest (no pun intended) in the card brands being able to charge as much as they want? Really?

In some parts of the U.S., utilities (which today absolutely have some competition) are still regulated by government bodies, which grant or deny rate increase requests based on their analysis of whether too much profit is being sought. The regulators in those cases work for the public, the voters. Wonder what would happen if the card brands had to get their rates approved by a group that works for the major chains? A group that had routine access to internal profit and loss figures so it could make a reasonable determination of whether an interchange fee was reasonable.

It will never happen, but it’s still enjoyable to envision. As for the MC lawyer who said ““If we win this case, we would be free to set any fees we want,” one has to wonder what he was thinking when he uttered that sentence of truth. Isn’t that precisely what the EU—and every retail chain in the world—is afraid of?


Comments are closed.


StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!

Most Recent Comments

Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.