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European consumers stand to benefit from lower credit card transaction fees when shopping in other EU countries after yesterday's decision by the European commission to drop legal action against MasterCard.
The world's second-largest provider of credit and debit cards has agreed to slash its so-called multilateral interchange fees (MIF) for cross-border payments and repeal other "membership" fee increases in exchange for lifting threatened fines.
But the company made it clear that its cuts were only temporary, pending its appeal to Europe's highest court, and some retailers condemned the "appalling" move as a "weak compromise".
Hailing the decision, Neelie Kroes, the EU competition commissioner, said: "This will mean lower charges for retailers accepting payment cards, which should in turn be passed on to consumers."
She indicated that other providers of credit and debit cards, such as Visa, should follow suit - and warned the biggest provider that she would continue to investigate its business practices.
"I have no intention that today's announcement will allow Visa to benefit at the expense of MasterCard," Kroes told reporters. "We are determined to keep a level playing field in these markets." Visa claimed it had cut its fees to an average of 0.61% per transaction and reiterated its call for a negotiated settlement.
But Xavier Durieu, head of the retail lobby EuroCommerce, said a fixed fee of just €0.01 to €0.05 (1-5p) would still be profitable for issuing banks. The British Retail Consortium welcomed the move to cut so-called membership fees, saying it would save £15m a year for UK banks.
Kroes insisted that the decision sent a signal to the entire European banking sector that it must be more efficient and lower costs for merchants and consumers as a way out of the economic crisis.
She said: "According to MasterCard, these [new] rates will become the lowest MIF rates in the world. This is proof of the benefits of strong competition policy for the European economy."
The liberal Dutch commissioner sees her 15-month battle with MasterCard and ongoing dispute with Visa as part of the EC's pro-consumer campaign to boost the single market and wider economy through cheaper fees.
MasterCard has agreed to cut the average MIF charged to retailers and their banks to 0.30% for credit card transactions and 0.20% for its Maestro debit cards. This compares with the previous 0.90-1.90% and 0.40-0.75% respectively.
Kroes sees the decision as "the next step" in Europe's transition from cash to plastic money in a market that is already worth several trillion euros a year and set to expand via online shopping. The MIF, her aides said, amount to €12bn a year for national and cross-border transactions. The latter is worth €600m, with MasterCard accounting for some €200m of that.
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