Notice pursuant to Article 19(3) of Council Regulation No 17 — Case COMP/29.373 — Visa International (Text with EEA relevance)
Date: 2001-08-11
Institutions: European Commission
Subjects: bank charges, electronic money, financial transaction

11.8.2001

EN

Official Journal of the European Communities

C 226/21

Notice pursuant to Article 19(3) of Council Regulation No 17 (1)

Case COMP/29.373 (cid:151) Visa International

(2001/C 226/10)

(Text with EEA relevance)

1. INTRODUCTION

1. On 31 January 1977, Ibanco Ltd, since 1979 known as
Visa International Service Association, notified various
rules and regulations governing the Visa Association
(Certificate of Incorporation, By-Laws and Operating Regu-
lations) to the Commission, applying for negative clearance
under Article 81(1) or,
in the alternative, an exemption
under Article 81(3) of the EC Treaty.

and the

2. After having initially sent a comfort letter, the Commission
reopened the investigation in the Visa case in 1992,
following a complaint,
letter was
withdrawn. The reopened investigation also took into
filed on 23 May 1997 by Euro-
account a complaint
Commerce, a retail, wholesale and international
trade
representation in the Community, concerning various
aspects of, inter alia, the Visa International payment card
scheme, in particular multilateral interchange fees.

comfort

2. THE PARTIES

from around the world.

3. Visa International Service Association ((cid:145)Visa(cid:146)) is a for-profit
corporation owned by about 20 000 member financial
In 1999, Visa’s
institutions
revenue amounted to USD 1 455 million worldwide, of
which about USD [. . .] (2) million in the Visa EU Region.
Visa, which is incorporated in the USA, operates the Visa
card system and provides authorisation and clearing
services via a worldwide computer and telecommunication
network, called VisaNet. Visa itself does not issue Visa
cards to cardholders nor does it contract merchants for
Visa card acceptance, but its member financial institutions,
which have received a licence to that end from Visa, do.

and Switzerland,

Iceland, Liechtenstein, Norway, Turkey,

4. Visa has divided the territory in which it is active into six
In the Visa EU Region, which also
regions worldwide.
Israel,
covers
Cyprus, Malta
in addition to the
Community, there are over 5 000 Visa members. Decision-
making is delegated to the Visa EU Regional Board of
Directors
((cid:145)the EU Regional Board(cid:146)), which is elected
every two years from Visa member financial institutions
in the EU Region. The EU Regional Board is responsible
for EU intra-regional affairs, such as for example the

(1) OJ 13, 21.2.1962, p. 204/62, as last amended by Regulation (EC)

No 1216/99 (OJ L 148, 15.6.1999, p. 5).

(2) Parts of

this text have been edited to ensure that confidential

information is not disclosed.

adoption of the Visa EU Regional Operating Regulations
and setting EU intra-regional default interchange fees.

but

broadly

speaking,

5. There are various classes of membership in the Visa
corporation
of
membership are open to any institution organised under
the commercial banking laws of its own country and auth-
orised to accept demand deposits. However, Visa does not
accept for membership any applicant that is deemed by
the
the Board of Directors
corporation.

to be a competitor of

classes

all

3. THE AGREEMENTS

3.1. General

6. The notification by Visa concerns rules and regulations
governing the Visa association and its Members, that is,
the Certificate of Incorporation, International By-Laws and
Regional Board Delegations, as well as the international
provisions
is,
relating to Visa’s payment cards,
international operating regulations, European
general
Union regional perating regulations, dispute resolution
rules and card and marks specifications. All notified Visa
rules and regulations will hereinafter be referred to as (cid:145)the
Visa rules(cid:146) (3).

that

3.2. The interchange fee

7. Pursuant to the Visa rules, the acquiring bank has to pay
to the issuing bank an interchange reimbursement fee for
each transaction with a Visa card where issuer and
acquirer are different. In the EU region, this interchange
fee is set by default by the Visa EU Regional Board, which
according to Visa has currently broadly even represen-
tation of net issuers and net acquirers. The multilateral
interchange fee (MIF)
is currently always an ad valorem
fee; it is set as a percentage of net sales. For example, its
exact level varies according to the type of Visa card used.
Visa currently considers the exact level of its MIFs as a
business secret and does not allow its member banks to
disclose information on it to their clients, such as, for
the MIF is
example, merchants,
normally passed on by acquiring banks.

to whom the cost of

(3) With regard to some specific provisions in the Visa rules,

the
Commission published on 14 October 2000 a notice pursuant to
Article 19(3) of Regulation No 17 (OJ C 293, 14.10.2000, p. 18),
inviting interested third parties to provide their observations to the
intention of the Commission to take a favourable position towards
these provisions. These provisions concerned in particular
the
so-called no-discrimination rule and modified rules on cross-border
services.

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EN

Official Journal of the European Communities

11.8.2001

8. The MIFs set by the Visa EU Regional Board apply by
default
to all EU intra-regional Visa card transactions,
that is transactions where a Visa card, issued in Member
State A is used at a merchant’s outlet in Member State B.
According to Visa, in the Community, these transactions
represented in 1999 about 10 % of all Visa card trans-
actions at merchant outlets. Where Visa members have
not concluded multilateral or bilateral agreements for
domestic interchange, the default fee set by the Visa EU
Regional Board also applies to such domestic transactions.
According to Visa, this is currently the case in Creece,
Ireland, Italy, the Netherlands and Sweden. Any domestic
interchange fees set by international Visa members are not
part of the notification by Visa International.

3.3. Reasoning of Visa for its interchange fee

9. Visa does not consider its MIFs as prices for specified
services provided by issuers to acquirers or merchants.
Rather it considers the MIF as a transfer between under-
takings which are cooperating in order to provide a joint
service in a network characterised by externalities and
joint demand. The MIF is, according to Visa, necessary
as a financial adjustment to the imbalance between the
costs associated with issuing and acquiring and the
revenues from cardholders are materially lower than the
costs incurred by the issuing bank. Conversely, revenues of
acquiring banks from merchants are materially in excess of
the costs on behalf of the payment system as a whole
incurred by the acquiring bank. On this view, the inter-
change fee serves to adjust these imbalances, with a view
to increasing demand for and use of the payment service.
Visa claims that without an appropriate interchange fee,
the system would not operate at its optimal level and the
key strength of the Visa system, namely a large number of
cardholders and merchants, would be undermined.

4. MODIFICATIONS PROPOSED BY VISA

10.

a

formal proposal

In order to meet the concerns of the Commission, Visa has
made
to the Commission for
amendments to its EU intra-regional MIF. This proposal
was approved by the Executive Committee of the Visa
EU Regional Board on 27 June 2001.

12. The proposal relates to point of sale (POS) transactions
with consumer cards. Commercial cards are excluded
from the proposal because, according to Visa,
they
concern a relatively new product with specific charac-
to
commercial
teristics. Moreover,
represent a small part of all Visa card transactions.

cards

said

are

4.1. Reduction of the level

13. Visa proposers to reduce the overall

level of the intra-
regional MIF applicable to consumer card products in
the Visa EU Region through the introduction of a fixed
rate per transaction MIF for direct debit cards and also a
gradual reduction of the level of the ad valorem per trans-
action MIFs applicable to certain types of credit and
deferred debit cards.

14. Visa proposes to introduce an average intra-regional MIF
of EUR 0,28 for direct debit card transactions as soon as
technically possible, probably by April 2002. This fee
would be maintained for five years, subject to adjustment
in the event of a significant change in the rate of inflation.
According to Visa, this represents a reduction of more
than 50 % for an average direct debit card transaction.

15. The rates of MIF applicable to intra-regional transactions
on certain types of credit and deferred debit cards would,
according to the proposal, be reduced over a five-year
period. Together with certain MIF reductions already
decided, this would leave the weighted average MIF at
0,7 % by 2007, according to Visa’s estimate of transaction
volumes with the different types of card at that date. Visa
estimates that the effect of the modifications (debit and
credit cards combined) on MIF revenues
issuing
banks would be a reduction of more than 20 % over the
five-year period, compared with what the revenue would
have been if the offer were not implemented.

for

11. The proposal of Visa comprises the following elements:

4.2. Objectivity

(a) a reduction of the level of the intra-regional MIF;

(b) the introduction of objective benchmarks against
which to assess the Visa intra-regional MIFs currently
paid by acquirers to issuers; and

(c)

transparency.

16. Visa proposes that three categories of costs involved in
supplying Visa payment services be used as an objective
benchmark against which to assess the Visa intra-regional
MIFs currently paid by acquirers to issuers on POS trans-
actions. These three cost categories are:
the cost of
processing transactions, the cost of free funding for card-
holders (the (cid:145)float(cid:146)) and the cost of providing the payment
guarantee. A study would determine the cost elements
comprised within each of the three cost categories and
with regard to some cost components only a percentage
would be taken into account for the purpose of calculating
the cost benchmarks.

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Official Journal of the European Communities

C 226/23

17. According to the Visa proposal, the effective level of the
MIFs would not exceed the sum of these three categories
of costs except in exceptional circumstances, such as, for
example,
to discourage behaviour which could impede
technical progress. The Commission would be consulted
beforehand. Below this level, Visa would have discretion
to determine the level of the MIFs which it considers to be
commerlcially appropriate.

4.3.2. Transparency of the MIF to merchants

20. Visa’s proposal also involves amending the Visa rules so as
to allow member banks to disclose to merchants both the
level of the Visa EU intra-regional MIFs in force and the
relative percentages of the three cost categories, should
merchants request such information. Merchants are to be
made
this
the possibility of
information from their banks.

aware of

requesting

4.3. Transparency

4.3.1. Cost studies

18. Visa would submit to the Commission, shortly after their
completion,
showing the calculations
studies
based on the three cost categories mentioned in point
into figures relating to credit and
16, data being split
deferred debit cards, and data relating to direct debit cards.

the cost

5. INTENTION OF THE COMMISSION

21.

In view of the foregoing, the Commission intends to adopt
a favourable position concerning the MIF provisions in the
notified Visa rules. Before doing so,
it invites interested
third parties to submit
their observations within one
the publication of this notice in the Official
month of
the European Communities. These observations
Journal of
should be submitted quoting reference Case COMP/29.373
(cid:151) Visa International, by post to:

19. The cost studies would be carried out by Visa and audited
by an independent firm of accountants. The data used in
the preparation of the cost study would be provided by a
representative sample of Visa member banks from the Visa
EU Region, located within the EEA.

European Commission
Directorate-General Competition
Direction D, Unit D1 (Financial Services)
Rue de la Loi/Wetstraat 200
B-1049 Brussels,
or by fax (32-2) 296 98 07.