ITU Workshop on Digital Financial Services and
Financial Inclusion
14 December 2015
Geneva, Switzerland
MIF – Competition and regulation in light of
recent developments
Maria Chiara Malaguti,
Professor of International Law, Catholic University
(Milan-Rome)
malaguti@mazzonieassociati.it
What policy response to the trade-off between
cooperation and competition?
• Increasing awareness of the role of cooperation
and competition in the overall efficiency of the
(retail) payment system, yet widely diverging
opinions on how to address their shortcomings
• The lack of an overarching objective means that
there is a greater need to reconcile multiple
public-policy goals
• Oversight of central banks and cooperation with
other authorities
Two sided markets
• Supply and demand on one side are
determined by supply and demand on the
other side Trying to bring both sides “on
board” by appropriate charging of each side
Different charging models might be used for
the two sides
The antitrust approach at its onset
USA
• NaBanco (1986) applies rule of reason:
–
–
–
•
EU
• VISA II (2002) grants exemption:
–
Indispensable to recover costs by issuing
banks
Essential to creating a card system
Negligible impact on competition because
relevant market include all payment
instruments
–
–
–
–
US vs VISA USA (2003):
–
–
Separated market for credit cards
Rule of reason depends on actual market
conditions: today far from NaBanco
•
Market is considered at both sides (issuing and
acquiring)
Efficiency gains compared to bilateral
agreements due to lower negotiation and
transaction costs
Network externalities
Issuing costs methodology
In substance: it might depend on level of MIF
Mastercard (2007) does not:
–
Market considered only at acquiring side: no
proof of efficiency gains
– Card schees can also work without MIF
– Not all customers benefit from MIF
– Negative effects on merchants
[2009 Mastercard offers commitments]
•
From VISA II to Mastercard: from restriction by
effect to restriction by object?
Further at EU level
• Mastercard appeals to the General Court (2012) but this confirms the
Commission’s decision:
– There are other default settlement mechanisms less restrictive
(prohibition on “ex post pricing”)
– MIF set a de facto floor for the merchant service charge reducing their
possibility to negotiate a price below certain thresholds
• Second degree confirms first degree (September 11, 2014)
– Lack of “objective necessity”: no application of “ancillary restrictions”
– “Benefits to the customer” means “benefits to the merchants”. No
matter if these can be compensated by benefits to cardholders
Latest EU developments
as for competition: VISA
•
•
Following the expiry of an exemption decision in December 2007 and the adoption of the
MasterCard Decision, the Commission opened a new antitrust investigation against VISA.
In response to the Commission's objections, VISA offered commitments to reduce the maximum
weighted average MIF for consumer debit cards, for cross-border transactions and national
transactions in those EEA countries where it was setting the MIF directly, to 0.20%. (2010)
•
•
In July 2012 the Commission sent Visa a supplementary statement of objections
Visa Europe's offered new commitments (2014)
–
–
–
As regards 'cross-border acquiring': to allow acquirers from 1 January 2015 to apply a reduced cross-border
inter-bank fee (0.3% for credit and 0.2% for debit transactions) for cross-border clients. Visa Europe also
agreed to apply the same fees (0.3% for credit and 0.2% for debit transactions) to transactions carried out
with merchants located within the EEA with Visa consumer and debit cards issued in non-EEA countries
belonging to the Visa Europe territory.
As regards inter-bank fees: Visa Europe agrees to cap its credit card MIFs at 0.3% for all consumer credit
card transactions in the EEA where Visa Europe sets the rate. This concerns cross-border fees (where a card
issued in one EEA country is used in another one) and domestic fees in currently ten Member States, and
represents a reduction of about 40-60%.
As regards transparency: to simplify its inter-bank fee structure and make the invoicing of card acceptance
services more transparent to merchants.
Latest EU developments
as for competition: MasterCard
• Commission’s Statement of Objections against MasterCard (9 July
2015):
• Interchange fees still vary considerably from a Member State to
another.
• MasterCard's rules would prevent retailers in a high-interchange fee
country from benefitting from lower interchange fees offered by an
acquiring bank located in another Member State (so called "crossborder acquiring").
• The Commission is concerned that MasterCard's rules on crossborder acquiring limit banks' possibilities to compete cross-border
on price for services to receive card payments and so restrict
competition in breach of EU antitrust rules, leading to higher prices
for retailers and consumers alike.
The EU regulatory approach
• Regulation 2015/751 on interchange fees for
card-based payment transactions
– IF for consumer debit card transactions: 0,2%
– IF for consumer credit card transactions: 0,3%
– Co-badging
– Unblending
– “honour all cards” rule
– Steering rules
Regulatory approaches outside the EU
AUSTRALIA
• RBA imposed
– caps on MIF
– Prohibition of no surcharge
and honor all cards rules
• This did not apply to threeparty systems but the use of
such cards did not raise, at the
opposite it lowered because of
competition from four-party
cards (probably because of
prohibition of no surcharge
rule)
USA
• Durbin Amendment to the
Dodd-Frank Act: new Section
920 to the EFTA on reasonable
fees and rules for payment
card transactions
– Although the other rules are
applied by the BCFP, section
920 is applied by the Fed
– Fed’s powers are framed
within a statutory act and
under clear policy lines
– Reasonable fees: aligned to
costs
Some key issues
• Shortfalls of the antitrust approach?
– As for economic parameters
• Limits of the market definition according to competition standards
• Constraints imposed by market structure (for instance, capability to
switch from operator to operator)
• A “static” analysis of market conditions
– The quasi-regulatory role of antitrust authorities
• Advocating a role for the regulator?
• A perspective analysis of the market structure
• An holistic view of payment instruments and infrastructures
• Other policy issues at stake such as efficiency, financial stability and
customers’ protection
The issue is not weather regulators
should directly address competition
• Competition versus competitiveness
• Oversight as a tool implying different levels of
monitoring and different roles by various
stakeholders
• Central Banks to balance and combine positions
of other authorities, each in charge of its own
sector/objectives?