Interchange Fees - Returns Or Recoveries?

Interchange fees are paid by merchant acquirers to card issuers as a percentage of each and every credit and debit card transaction. Acquirers pass these costs onto their merchants which may result in higher prices for consumers. Analysts have struggled to quantify these fees but estimate that they may come to some £2 billion per year in the UK alone.

The level of interchange fees varies according to products, their means of purchase and the jurisdictions involved. However, there are mechanisms in place to cap these fees. For example the EU's Interchange Fee Regulation (Regulation (EU) 2015/751) caps fees at 0.2% and 0.3% for most debit and credit card transactions respectively, within the European Economic Area.

These caps are the result of the 'Merchant Indifference Test' i.e. fees must be low enough to ensure that a merchant is not materially disadvantaged by accepting card payments.

The build-up

In 2007, the European Commission decided that the interchange fees applied by MasterCard to cross-border transactions (within the EEA) restricted competition between acquirers and inflated merchants' costs, without leading to any proven efficiencies (COMP/34.579).

Following multiple appeals, the ECJ confirmed the decision in 2014 (EU:C:2014:2201). However, in the meantime (during 2009) MasterCard reduced its cross-border interchange fees.

In 2010, following the EC's investigation into Visa's European interchange fees, Visa also reduced its cross-border interchange fees for debit cards. This was followed by the 'Visa Commitments' which were made legally binding by the European Commission and led to further capping and transparency measures applied to these fees in 2014.

In 2015, the EC opened another investigation into MasterCard, based on interchange fees applied to card payments made into the EEA (most of which were domestic transactions), acquiring merchants across borders and the business practices of the card scheme.

These investigations and undertakings laid the foundations for four key rounds of UK litigation that would follow over the next two years.

Round 1 - Sainsbury's claims damages from MasterCard

In July 2016, Sainsbury's Supermarkets built on the EC's decisions of 2007 and 2014 and recovered damages from MasterCard (Sainsbury's Supermarkets Ltd v MasterCard Inc [2016] CAT 11).

Sainsbury's alleged that MasterCard's interchange fees prevented acquiring and issuing banks from negotiating lower interchange fees. As a result...