Card fees ‘no benefit to customers’

MasterCard has in ‘no way’ demonstrated that its interchange fees on card transactions had wider benefits to consumers, a court heard.

The company is at the centre of a High Court case brought by major retailers who claim the company set multilateral interchange fees (MIFs) at unlawful levels for nearly ten years.

The fees are charged by banks to merchants on every card transaction as part of a Merchant Service Charge [MSC].

The claimants include House of Fraser, Argos, Morrison, Iceland, Next, New Look, B&Q, Comet, Arcadia Group Ltd, and Record Shop 2.

A Competition Appeal Tribunal [CAT] awarded Sainsbury’s £68.5m after ruling MasterCard had set the MIF at uncompetitive levels from 2008.

Today (Thurs) Mark Hoskins QC, for MasterCard, contested the evidence of retailers’ expert witness Neil Dryden in his closing submissions.

Mr Hoskins challenged Dryden’s assessment framework for the benefits of MasterCard’s products, suggesting it was too narrow.

He cited competition rules from Article 101 of the Treaty on the Functioning of the European Union that provides exemptions for restrictive competition practices.

Banks issuing and acquiring MasterCard products needed the MIF fees in order to receive benefits from their card schemes.

Mr Hoskins said: ‘If you look at social welfare you would look at cardholders, merchants and acquiring banks.

‘The concept of consumers encompasses all direct and indirect users of products covered by agreement

‘Consumers who must receive a fair share is not limited to final consumers.

‘Issuers and acquirers use the MasterCard services as an input. Issuers and acquirers must therefore be fair sharers of the benefits.’

‘That is why Mr Dryden’s conditions are not fit for purpose.

‘Issuers as users of MasterCard scheme are themselves entitled to share in the benefits of the scheme not that they should pass on all the benefits of the scheme.

‘Issuers and acquirers choose whether they wish to take part or not.

‘Let’s look at this from a commercial perspective, of course issuers and acquirers must be entitled to some level of benefit from the scheme otherwise they would never take part in it.

‘Interest revenues are not set by MasterCard, they are ways in which the banks choose to operate.

‘No MasterCard rule that requires them to deal with anyone in anyway. Setting interest rates that is entirely for the bank.

‘Without a sufficiently attractive MIF, issuers would not come to the scheme.’

Paul Lowenstein QC, for the retailers, rejected Mr Hoskins arguments claiming that MasterCard had failed to quantify the wider benefits the MIF levels brought to the market.

He said: ‘It beggars belief that the issuers and acquiring banks should be classified as consumers,

‘MasterCard, the party seeking the exemption, must quantify the benefits

‘There is no explanation of the methodologies that are relied upon.

‘There is no question that card schemes produce benefits. The question is whether or not MasterCard MIFs produce these as relevant benefits.

‘If the connection or causation can’t be shown then they must be left out of the count.

‘MasterCard has failed to prove that MIF expands output.’

Mr Hoskins also re-iterated his argument from earlier in the trial that MasterCard would have faced ‘total wipeout’ if it had set lower interchange fees.

Referring to the £70m difference between Mastercard’s Maestro and Visa’ debit card users he said:

‘Assume MasterCard had an offering that is wholly uncompetitive and Visa – then given the figure of around £70m worth of differentials… The value of switching £70 million in one it would have been no surprise that MasterCard market share would have collapsed.

‘Even if we were to ignore the MasterCard/maestro part of the story when we’re looking at the amount of money over a 10 year period then the only conclusion is total wipe-out.

‘Would a commercial organisation put all that effort in… knowing that it could never compete on fair terms in the market. Would it be left with a rump of 3%?’

The trial has now been adjourned while Mr Justice Popplewell considers his judgement, which he said was unlikely to arrive before Christmas.
ends