Reform of Australia's Payments System: Issues for the 2007/08 Review – May 2007 IV. Regulatory Developments Overseas

65. Australia is not the only country to have been examining the appropriate regulation of payment systems. In a number of countries, either the courts or the competition regulator have become involved in disputes about the appropriate level of interchange fees and the details of various payment scheme rules ( Table 2). Most notably, the MasterCard and Visa card schemes have been subject to a number of investigations and actions because of concerns about their rules and practices.

Interchange fees

66. The setting of interchange fees has been an issue in many jurisdictions over the past decade. Competition authorities have been concerned about the implications of centrally set interchange fees, and merchants have been concerned about the high costs of accepting credit card payments. In Europe, competition authorities have been at the forefront of investigating the setting of interchange fees, while in the United States the issue has been mainly addressed through legal action by merchants.
67. In some cases, the competition authorities have come to the view that the multilateral setting of interchange fees is illegal and that the practice must cease or be ‘authorised’ by the authorities. The Spanish Competition Tribunal denied authorisation of the interchange fee arrangements of the Spanish card schemes in 2005, requiring the schemes to submit a new methodology for authorisation.^[1] More recently, the Polish Office of Competition and Consumer Protection ruled that interchange fee agreements between banks in the MasterCard and Visa schemes were illegal, imposing fines on the Polish banks involved and requiring them to discontinue their interchange arrangements. The ruling has been appealed but it remains in effect pending the outcome.^[2] The New Zealand Commerce Commission has also recently launched an action against MasterCard, Visa and their members, alleging that the setting of interchange fees is price fixing and illegal.^[3] In the United Kingdom, the Office of Fair Trading (OFT) decided in 2005 that MasterCard's setting of the multilateral interchange fee was in breach of competition laws.^[4] MasterCard appealed the decision but, since MasterCard had changed its method of setting interchange fees, the OFT consented to its decision being set aside by the Competition Appeals Tribunal. The OFT is now investigating MasterCard's new method of setting interchange fees, as well as the setting of Visa's interchange fees.^[5]
68. In other cases, the authorities have reached agreements with the schemes on how interchange fees should be set. The European Commission (EC), for example, entered into an agreement with Visa in 2002 that required Visa to introduce a cost-based method of determining cross‑border interchange fees and to reduce those fees by December 2007.^[6] A similar EC investigation into MasterCard's cross-border interchange fees is ongoing. The Swiss Competition Commission ruled in 2005 that interchange fees should cover only the costs of a card network and, as a result, entered into an agreement with credit card issuers that they reduce interchange fees from an initial range of 1.65-1.70 per cent to a maximum of 1.30-1.35 per cent.^[7] In Mexico, the central bank has achieved reductions in interchange fees through negotiations with the Mexican Bankers Association, although it also has regulatory powers in this area that have not been formally invoked to date.^[8]
69. In contrast, action on interchange fees in the United States has been driven by private litigation. Over recent years, merchants have launched a large number of actions against MasterCard, Visa and their members, alleging that the setting of interchange fees constitutes price fixing, and requires merchants to pay for services that they do not want. Due to the similarity of many of the actions, a large number have been combined into a consolidated case which is ongoing.
70. There has also been increasing interest in analysis of interchange fees. The EC published a report on payment cards in 2006 as part of an inquiry into retail banking.^[9] The report contained several findings relating to the level and efficiency of interchange fees. In particular, it found: that interchange fees did not seem necessary for the profitability of card businesses at a majority of banks; that many domestic payment systems operated without interchange fees; large variations across countries in interchange fees, suggesting a lack of an objective basis for the fees; and there was little evidence of competitive forces between schemes affecting interchange fees. The EC inquiry's final report, released in January 2007, suggests that anti-trust enforcement action may be appropriate to address the level of interchange fees in some networks.^[10]

Merchant restrictions

71. Restrictions on merchants have also received some attention in overseas jurisdictions, with the no-surcharge rule (or no-discrimination rule) being examined in a number of countries prior to investigations into interchange fees. Surcharging on credit card transactions has been permitted in the United Kingdom since 1989 when the Monopolies and Mergers Commission decided that the prohibition on surcharging was anti-competitive in restricting the freedom of merchants to set their own prices.^[11] The no-surcharge rule has also been removed in a number of other countries including Switzerland, the Netherlands and Sweden.^[12]
72. In other cases, the rule has been found to be benign. In 2001, the EC ruled that, while Visa's prohibition on surcharging had the potential to restrict competition, the evidence was that any anti-competitive effect was not appreciable.^[13] The EC's more recent inquiry into retail banking has, however, found that further investigation may be required to establish whether the no-surcharge rule is in the public interest.^[14]
73. The honour-all-cards rule has received most attention in the United States where a private anti-trust class action led by Wal-Mart succeeded in modifying the rule through the terms of a settlement reached in 2003.^[15] This agreement allowed for separate acceptance decisions for scheme credit cards and scheme debit cards and is similar in substance to the Visa Debit Standard introduced by the Bank. The EC, however, ruled in 2001 that the honour-all-cards rule in the Visa system was necessary with respect to cross-border transactions. It did not consider the rule to be anti-competitive, as it considered the Visa brand to represent a group of related products, albeit with different prices.