2002/914/EC: Commission Decision of 24 July 2002 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (Case No COMP/29.373 — Visa International — Multilateral Interchange Fee) (Text with EEA relevance) (notified under document number C(2002) 2698)
Date: 2002-07-24
Institutions: European Commission
Subjects: application of EU law, costing, electronic money, financial institution, financial transaction, international organisation, payment

22.11.2002

EN

Official Journal of the European Communities

L 318/17

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 24 July 2002

relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement

(Case No COMP/29.373 — Visa International — Multilateral Interchange Fee)

(notified under document number C(2002) 2698)

(Only the English text is authentic)

(Text with EEA relevance)

(2002/914/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to the Agreement on the European Economic
Area,

Having given the parties concerned the opportunity of being
heard on the matters to which the Commission has taken
objection, in accordance with Article 19(1) of Regulation No
17 and with Commission Regulation (EC) No 2842/98 of 22
December 1998, on the hearing of parties in certain proceed-
ings under Articles 85 and 86 of the EC Treaty (3),

Having consulted the Advisory Committee on Restrictive Prac-
tices and Dominant Positions,

Having regard to the final report of the Hearing Officer in this
case (4),

Having regard to Council Regulation No 17 of 6 February
1962, First Regulation implementing Articles 85 and 86 of the
Treaty (1), as last amended by Regulation (EC) No 1216/
1999 (2), and in particular Article 6 and Article 8(1) thereof,

Whereas:

Having regard to the application for negative clearance and the
notification with a view to an exemption submitted by Visa
International on 31 January 1977 pursuant, respectively, to
Articles 2 and 4 of Regulation No 17,

I. THE FACTS

1. INTRODUCTION

Having regard to the complaint lodged by EuroCommerce on
23 May 1997 pursuant to Article 3(2)(b) of Regulation No 17,

Having regard to the Commission decision of 6 May 1999 to
initiate proceedings in this case,

(1) OJ 13, 21.2.1962, p. 204.
(2) OJ L 148, 15.6.1999, p. 5.

(1)

On 31 January 1977 Ibanco Ltd, since 1979 known as
Visa International, notified various rules and regulations
governing the Visa association and its members to the
Commission, applying for negative clearance under
Article 81(1) or, in the alternative, an exemption under
Article 81(3) (5).

(3) OJ L 354, 30.12.1998, p. 18.
(4) OJ C 286, 22.11.2002.
(5) In its letter of 23 March 1994 Visa International requested the
Commission to extend its existing notification to Article 53(1) and
(3) EEA.

L 318/18

EN

Official Journal of the European Communities

22.11.2002

(2)

After having initially sent a comfort letter, in 1992 the
Commission re-opened the investigation in the Visa case,
following a complaint and the comfort letter was with-
drawn. The re-opened investigation also took into
account a complaint filed on 23 May 1997 by EuroCom-
merce, a European retailers organisation, concerning
various aspects of,
the Visa International
payment card scheme, in particular interchange fees. In
its decision of 9 August 2001 (6),
the Commission
cleared certain provisions in the Visa rules under Article
81(1) of the EC Treaty/Article 53(1) of the EEA Agree-
ment, however this decision explicitly did not cover the
interchange fee issue.

inter alia,

regional affairs, such as for example, the adoption of
regional regulations like the Visa EU Regional Operating
Regulations.

(6)

There are various classes of membership in the Visa
corporation but broadly speaking all classes of member-
ship are open to any institution organised under the
commercial banking laws of
its own country and
authorised to accept demand deposits. However, Visa
does not accept for membership any applicant that is
deemed by the Board of Directors to be a competitor of
the corporation (7).

(3)

The present decision relates to the intra-regional inter-
change fee scheme of Visa International for consumer
cards, as applied to cross-border point of sale Visa card
payment operations between EEA Member States and as
modified as described in section 3.2.3.

2.2. EUROCOMMERCE

(7)

EuroCommerce is a retail, wholesale and international
trade representation in the European Union. It has about
56 members throughout the EEA.

2. THE PARTIES AND THE COMPLAINANT

3. THE AGREEMENTS

2.1. VISA INTERNATIONAL AND ITS MEMBERS

(4)

(5)

is

Visa
a
International Service Association (‘Visa’)
privately owned, for-profit corporation owned by about
20 000 member financial institutions from around the
world. Visa's revenue amounts to USD 1 455 million
worldwide. Visa, which is incorporated in the United
States of America, operates
the Visa card system
network. To that end it manages trade marks, lays down
the rules of the system and provides authorisation and
clearing services via a world-wide computer and tele-
communication 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.

Visa has divided the territory in which it is active into
six regions worldwide. In the Visa EU Region, which also
covers Iceland, Liechtenstein, Norway, Turkey,
Israel,
Cyprus, Malta and Switzerland,
in addition to the
Community, there are over 5 000 Visa members. Deci-
sion making is delegated to the Visa EU Regional Board
of Directors (‘Visa EU Board’), which is elected every two
years from Visa member financial institutions in the EU
Region. The Visa EU Board is responsible for intra-

(6) OJ L 293, 10.11.2001, p. 24.

3.1. GENERAL

(8)

(9)

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 interna-
tional provisions relating to Visa's payment cards. These
are the General
International Operating Regulations,
European Union Regional Operating Regulations,
Dispute Resolution Rules and Card and Marks Specifica-
tions. All notified Visa rules and regulations will herein-
after be referred to as ‘the Visa Rules’.

interchange reimbursement

The present decision relates to the proposed modified
Visa EU intra-regional
fee
scheme for consumer cards (8), to be implemented in the
Visa Rules in the course of 2002 (9). This intra-regional
interchange fee scheme is applicable to cross-border Visa
consumer card transactions at merchant outlets in the
EEA (that is the 15 Member States of the European
Union as well as Iceland, Liechtenstein and Norway), and
by default to domestic Visa card payment operations
within a Member State, in cases where no distinct Visa
interchange fee rate has been set by the national Visa

(7) The Visa membership provisions are under examination in the
context of case COMP/37.860 and are not the subject of the present
decision, which is adopted without prejudice to the outcome of the
Commission's examination of that case.

(8) As approved by the Visa EU Board on 27 June 2001, and subse-
the final Visa Proposal being

quently modified and extended,
described in section 3.2.3 below.

(9) With the exception of the new distinct intra-regional interchange
rate for mail order and telephone payments (see section 3.2.3.4
below), which will be implemented by April 2003.

22.11.2002

EN

Official Journal of the European Communities

L 318/19

member for that Member State (10). However, the present
decision relates only to the notified intra-regional inter-
change fee of Visa as applied to cross-border Visa card
payment operations between EEA Member States, not to
any domestic interchange fees set by national Visa
members, nor to any application of the intra-regional
interchange fee of Visa to domestic Visa card payment
operations within a Member State. Furthermore,
the
present decision does not apply to the current intra-
regional
interchange fee of Visa for commercial cards
[…]* (*) (see footnote 12 below).

(12)

The MIF was introduced by Visa in 1974 (at that time
still called Ibanco Ltd). In 1981, with the introduction of
a separate administrative region covering the EU, a
specific MIF for intra-regional transactions in the EU was
set. Until Visa's proposal for a modified MIF scheme, the
average level of the MIF had been gradually increased.
According to Visa the weighted average of the various
interchange fee levels in the year 2000 was […]*.

3.2.2. The current MIF scheme

3.2. THE VISA INTERCHANGE REIMBURSEMENT FEE

3.2.1. General

(13) As from its introduction, the MIF set by the Visa EU
Board has been set as a percentage of net sales. Despite
the carrying out of a cost study for reference purposes,
the Visa EU Board has been free to set the MIF at any
level
independently of any
specific services provided by issuing banks to the benefit
of acquiring banks.

it considers appropriate,

(10)

(11)

Pursuant to the Visa Rules, in the absence of a bilateral
agreement, the acquiring bank (that is, the bank which
contracts merchants for Visa card acceptance) has by
default to pay to the issuing bank (that is, the bank
which issues Visa cards to consumers) an interchange
fee for each transaction with a Visa
reimbursement
card (11). In the EU Region this interchange fee is set by
the Visa EU Board; its exact level varies according to the
type of Visa card used (consumer or commercial cards)
and according to the type of transaction. Bilateral agree-
ments between banks on interchange arrangements are
permitted, with no restrictions on their content.

(14)

The multilaterally-determined interchange fee (hereafter
MIF) which is set by the Visa EU Board applies 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 1999 of all Visa card transactions
at merchant outlets in the EU/EFTA countries about
10 % were intra-regional transactions. Where national
(multilateral or bilateral)
Visa members have not set
interchange rates for domestic transactions, the default
fee set by the Visa EU Board also applies to such
domestic transactions.

Visa does not consider its MIF as a price for specified
services provided by issuers to acquirers or merchants.
Rather it considers the MIF as a transfer between under-
takings that 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 received from cardholders and merchants. Visa
claims that in the present Visa scheme, 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
the payment
to increasing demand for and use of
service. Visa claims that without an appropriate inter-
change 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.

(10) According to Visa these Member States are Greece, Ireland, Italy,
the Netherlands and Sweden. The Visa Rules also contain provi-
sions relating to cash disbursement reimbursement fees, to be paid
by the ATM acquirer to the card issuer. These fees are not the
subject of the complaint by EuroCommerce, nor of the present
decision.

(*) Parts of this text have been edited to ensure that confidential infor-
mation is not disclosed; those parts are enclosed in square brackets
and marked with an asterisk.

(11) Visa defines the interchange reimbursement fee as ‘a fee reimbursed
by an acquirer to an issuer in the clearing and settlement of an
interchange transaction’ (Visa EU Regional Operating Regulations,
[…]*).

(15)

Visa has in the past considered the level of the MIF and
the way in which it is determined by the Visa EU Board
as a business secret, not to be disclosed by the Visa
members to their clients. Therefore, acquiring banks
which in practice pass on to merchants the interchange
fee that they have to pay to the issuing bank in part or
in whole, were not permitted to inform merchants about
the level of the MIF. Therefore, merchants have not been
made aware of the exact components of the MIF in their
merchant fee.

L 318/20

EN

Official Journal of the European Communities

22.11.2002

3.2.3. The modified MIF scheme

(19)

(16) On 27 June 2001 the Executive Committee of the Visa
EU Board approved a proposal
for a modified MIF
scheme. This proposal was further clarified and slightly
amended by Visa following comments of the Commis-
sion and third parties. The modified scheme relates to
point of sale (POS) transactions with consumer cards (12).
The final proposed modified MIF scheme involves four
main changes as compared with the present scheme.

3.2.3.1. Reduction of the level

(17) Under the modified scheme, Visa will reduce the overall
level of the intra-regional MIF applicable to consumer
card payments in the Visa EU Region through the intro-
duction of a fixed rate per transaction MIF for debit
cards (13). Visa will also carry out a phased reduction of
the level of the ad valorem per transaction MIFs applic-
able to certain types of credit and deferred debit cards.

(18) As concerns debit cards, Visa will

the yearly weighted average of

introduce flat-rate
intra-regional MIFs before the end of 2002. Visa has
undertaken that
the
different MIF levels (weighted by the volume of transac-
tions in each category) will not exceed EUR 0,28. This
fee will be maintained for five years, subject only to
adjustment in the event of a significant change in issuer's
costs as included in the cost study as described in section
3.2.3.2. Visa will bear the burden of proof to demon-
strate such significant change. According to Visa this
represents a reduction of more than 50 % for an average
debit card transaction, as compared with the continued
application of the current intra-regional MIF for debit
cards.

(12) Commercial cards (that is, cards issued to business users for their
business expenses only) were excluded from the initial proposal for
modifications because, according to Visa, they constitute a rela-
tively new product with specific characteristics which may only be
issued to individuals to enable them to pay for business expendi-
tures. Following the comments made by the complainant and third
parties (see section 6 below) […]*. However, as said above (recital
9) the present decision does not cover the current […]* MIF for
commercial cards. Where in this decision reference is made to the
Visa proposal for a modified MIF scheme, this relates exclusively to
the proposal made with regard to Visa EU intra-regional POS trans-
actions with consumer cards.

(13) Debit cards are also known as direct debit cards or immediate debit

cards.

The rates of MIF applicable to intra-regional transactions
on credit and deferred debit cards will be reduced over a
five-year period. These reductions will leave the weighted
average MIF at 0,7 % by 2007 (according to Visa's esti-
mate of likely transaction volumes at that date in the
different categories of transactions to which different
MIF levels are applicable), compared with […]* in
2000 (14).

(20)

Visa estimates that the effect of the modifications (debit,
deferred debit and credit cards combined) on interchange
revenues for issuing banks from intra-regional transac-
tions will 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.

3.2.3.2. Objectivity

issuers' costs

(21) Under the modified scheme, Visa will use three cate-
gories of
involved in supplying Visa
payment services as an objective criterion against which
to assess the Visa intra-regional MIFs currently paid by
acquirers to issuers on POS transactions. These three
cost categories are: (1) the cost of processing transac-
tions, (2) the cost of the free funding period for card-
holders (15) and (3) the cost of providing the ‘payment
guarantee’ (16). A cost study, with data being split into
figures relating to immediate debit cards and data refer-
ring to deferred debit and credit cards, will quantify the
cost elements comprised within each of the three cost
categories (17).

(22)

Visa will submit to the Commission, within [12 to 18
months]* of the adoption of this decision, the first cost
study showing the calculations based on the three cost
categories mentioned above (data being split into figures
relating to credit and deferred debit cards, and data
relating to debit cards). The cost study will be carried

(14) The reduction in the weighted average MIF for credit and deferred
debit transactions is to be achieved in the following stages: 2002,
[0,81 % to 0,93 %]*; 2003 [0,78 % to 0,90 %]*; 2004, [0,77 % to
0,89 %]*; 2005 [0,74 % to 0,86 %]*; 2006 [0,70 % to 0,82 %]*;
2007, 0,7 %.

(15) This corresponds, for deferred debit cards, to the cost of any time
difference between payment to the acquirer and debiting of funds
from the cardholder's current account. For credit cards, it corre-
sponds only to the cost of any time difference between payment to
the acquirer and the time when either payment must be made by
the cardholder, or the balance of the credit card bill rolled over into
the extended credit facility, to which a rate of interest is applied
(that is, it does not include any costs arising from the granting of
extended credit to cardholders). For debit cards, it represents only
the processing time necessary to debit the transaction to the card-
holder account; for deferred debit and credit cards it represents also
the extra interest-free period before which payment must be made
or extended credit used.

(16) Visa does not use the terminology ‘payment guarantee’.

In the
present decision, this term is used to describe the promise of the
issuing bank to honour payments to the acquiring bank, even those
which turn out to be, inter alia, fraudulent or for which the card-
holder ultimately defaults, on condition that the merchant under-
takes all the security checks necessary to enable the issuing bank to
promise payment. As concerns default losses, only losses occurring
during the free-funding period are to be included in the MIF cost
study.

(17) Visa has informed the Commission of the subcategories of costs
which will be included within the three main categories. This infor-
mation is considered as business secrets by Visa.

22.11.2002

EN

Official Journal of the European Communities

L 318/21

out by Visa and audited by an independent firm of
accountants. The Commission will approve the firm of
accountants who will audit the cost study. The data used
in the preparation of the cost study will be provided by
a representative sample of Visa member banks from the
located within the EEA. Further cost
Visa EU Region,
studies will be prepared, and copies submitted to the
Commission, no less frequently than every [18 to 36
months]* thereafter.

(26)

(23)

For the sake of full transparency on the MIF cost study,
it can be specified that, in the proposal made by Visa,
the cost elements to be included under the three cost
categories can be broken down as follows (although this
information does not constitute a basis for the Commis-
sion's reasoning in granting an exemption under the
terms of Article 81(3) of the Treaty):

immediate debit cards:

— the cost of processing transactions,
following subcategories of costs: […]*,

that

is,

the

— the free funding period (as defined in footnote 15

above),

— the cost of

the ‘payment guarantee’,
following subcategories of costs: […]*;

that

is,

the

deferred debit and credit cards:

— the cost of processing transactions,
following subcategories of costs: […]*,

that

is,

the

(27)

— the free funding period (as defined in footnote 15

above),

— the cost of

the ‘payment guarantee’,
following subcategories of costs: [ …]*.

that

is,

the

(24) Under the modified scheme, the effective level of the
MIFs will 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, and following consultation with the
Commission. Below this level Visa will have discretion to
to be
determine the MIF level which it considers
commercially appropriate. The level resulting from the
cost study will thus constitute the cap for the MIFs for
consumer card payment by debit card on the one hand
and deferred debit and credit card on the other, regard-
less of the specific reductions agreed by Visa (detailed in
section 3.2.3.1).

3.2.3.3. Transparency

(25)

Furthermore, Visa will change its EU Regional Operating
Regulations 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 informa-
tion. Merchants are to be made aware of the possibility
to request this information from their banks.

3.2.3.4. Separate MIF for mail order/telephone order

transactions

Following the comments made by third parties in reac-
tion to the 19(3) notice of 11 August 2001 (section 6.2.
below) Visa proposed to introduce a separate intra-
regional MIF rate for mail order/telephone order (MO/
TO) transactions. The objective criterion for this will be
based on the same information gathered for the deferred
debit and credit card cost study, but corrected as to two
specific cost categories, under ‘payment guarantee’ and
‘processing of transactions’ to reflect the costs specific to
MO/TO transactions (18). Visa will apply the abovede-
scribed cost study for MO/TO in the same way as it will
apply the relevant cost study for credit/deferred debit
transactions, i.e. allowing for the fact that the MIF level
resulting from the cost study is a (maximum) cap. The
MO/TO MIF is not included in the Visa offer to reduce
the level of MIFs, described in section 3.2.3.1.

3.3. THE COMPLAINT

In its complaint, and in its subsequent submissions,
EuroCommerce has objected in principle against multi-
lateral
interchange fees. Notwithstanding the modifica-
tions proposed by Visa, EuroCommerce has maintained
its complaint. EuroCommerce considers the interchange
fee as a mechanism to shift onto merchants (and indir-
ectly onto customers who pay by means other than Visa
card) the costs of free advantages offered to cardholders.
Since the level of the fee is said to be agreed on between
the banks without any pressure from the market the
the MIF amounts, according to EuroCom-
setting of
merce, to a price-fixing cartel.

(28)

EuroCommerce considers that the MIF is not indispen-
sable for the Visa scheme to function successfully, and
has provided examples of payment card schemes, which,
it claims, function without a MIF. In particular, Euro-
Commerce has referred to the German ec-Karte scheme,
an allegedly four-party domestic debit card scheme func-
tioning without interbank fees, depending on the func-
tion of the card chosen by the merchant. Ec-Karte cards
can have different functions (e.g. guaranteed or unguar-
anteed) and the merchant decides which function he
wants to use. In particular, merchants are free to choose
a guaranteed payment (in which case they have to pay a
certain fee to the issuing bank) or an unguaranteed
payment. Moreover, EuroCommerce has provided the
example of the Australian EFTPOS debit card scheme,
which functions without a multilateral interchange fee
paid by the acquiring bank to the issuing bank. Instead,
in this payment card system there are bilaterally-agreed

(18) These categories are […]* and […]*.

L 318/22

EN

Official Journal of the European Communities

22.11.2002

fees, which go in the reverse direction (from issuing
bank to acquiring bank). EuroCommerce has also put
forward the example of the Canadian Interac scheme, a
domestic four party debit card scheme which functions
with an MIF set at zero (19).

(32) On 7 September 2001 the Commission sent an Article 6
letter pursuant to Regulation (EC) No 2842/98, rejecting
on a preliminary basis the complaint by EuroCommerce.
The reply from EuroCommerce was received on 29
October 2001.

4. THE ECONOMIC IMPACT OF THE VISA MIF

(29) As said above (recital 10) the Visa MIF has to be paid for
each transaction with a Visa card. Given the importance
of Visa card transactions in the EEA it is clear that these
fees can add up to substantial sums. With over 145
million cards
in the EU Region, over 4 million
merchants outlets accepting Visa cards and about 5 250
million transactions per year, Visa estimates that the
actual amount of international interchange paid by Visa
acquirers to Visa issuers in the EU on international trans-
actions (made up of both intra-regional and international
interchange) in 1999 was about […]*.

5. THE PROCEEDINGS

for

several

requests

the Visa case in 1992,

the
(30) After the re-opening of
Commission sent
information
pursuant to Article 11 of Regulation No 17, in particular
to Visa and several of its members as well as to Euro-
Commerce. On 29 September 2000 the Commission
sent a Supplementary Statement of Objections to Visa
with regard to its MIF, stating that it restricted competi-
tion within the meaning of Article 81(1) and that it had
not been established that the conditions for an exemp-
tion under Article 81(3) were fulfilled. Visa's written
observations were received on 11 December 2000 and
on 6 February 2001 an oral hearing took place. This
hearing was attended, apart from by Visa itself, also by
EuroCommerce and by third parties Europay Interna-
tional and MasterCard International.
In March 2001
supplementary observations, particularly on issues which
arose out of the oral hearing, were received from Visa,
from EuroCommerce and from the third parties which
attended the hearing.

(31)

In April 2001 Visa contacted the Commission to discuss
possible changes to its MIF. A concrete proposal was
approved by the Executive Committee of the Visa EU
Board on 27 June 2001. On 11 August 2001 the
Commission published a notice in the Official Journal
(OJ C 226, p. 21) describing the proposed modified MIF
scheme and inviting interested third parties to provide
their comments.

(19) From EuroCommerce's complaint, it is clear that it is not advo-
cating the ‘prohibition of the MIF’ in the sense of the removal of
any default arrangement on the terms of exchange of debt between
the issuing bank and the acquiring bank (which would leave issuing
banks free to impose unilaterally any interchange discount rate they
wish), but
the Commission to
impose on Visa ‘the exchange of paper at par’, which would
amount to leaving the MIF in place but reducing its level to zero,
as in the Canadian Interac system.

rather, EuroCommerce wishes

(33)

Further contacts between the Commission and Visa led
to one further specific modification (concerning mail
order and telephone operations),
leading to the final
version of the proposed modified MIF as described in
section 3.2.3. The complainant was given the opportu-
nity to comment on that further modification, by letter
of 22 March 2002.

6. COMMENTS RECEIVED ON THE PROPOSED MODIFIED
VISA MIF SCHEME, AND OBSERVATIONS OF THE
COMMISSION

6.1. COMMENTS FROM THE COMPLAINANT EUROCOM-

MERCE

for

any

opposes

exemption

(34) An Article 6 letter was sent to EuroCommerce on 7
September 2001 relating to its complaint against the
MIF in the Visa scheme in the parallel EuroCommerce
proceeding (20).
In its reply dated 29 October 2001,
EuroCommerce
the
proposed modified MIF scheme of Visa. EuroCommerce
holds firstly that the agreement setting the MIF is a price
cartel and as such not exemptible under any circum-
stances. Furthermore, EuroCommerce adds, in exempting
it, the Commission would be acting as a price regulator.
In its view, Visa's proposal of a cost-based MIF is impos-
sible to implement, since it is not feasible to identify
accurately a cost price for a service in the banking
sector, due to the high proportion of general overhead
costs and the arbitrary nature of allocation of
these
general
costs between different banking products.
According to EuroCommerce, any cost study must be
carried out independently by an external auditor not
designated by Visa. EuroCommerce argues against the
inclusion of all three of the cost elements included in the
proposed modified Visa MIF, on the basis that none of
them relates to a service which is to the benefit of
merchants; consequently,
there should be no costs
included in the MIF calculation, and the MIF should be
zero. EuroCommerce further argues that the proposed
reductions in MIF levels should come into effect in full
immediately, and in any case probably represent cost
reductions
Finally,
according to EuroCommerce, the revealing of MIF levels
and constituents to merchants will not
increase the
negotiating power of merchants (21).

achieved

planned.

already

or

(20) Case COMP/36.518. See recital 2, recital 7, and recital 27 to 28.
(21) The Commission's observations on these comments from the
complainant can be found in recital 39 below, insofar as they are
not dealt with in part II of the present decision (see in particular
sections 7.4.3 and 8.1.3). EuroCommerce made two further points
which are not dealt with in the present decision, since they fall
outside its scope. These are firstly that the Visa MIF for commercial
cards (not covered by the Visa proposal described in the Article 6
letter) was not exemptible, and secondly that the intra-regional MIF
of Visa should be considered in conjunction with the MIFs for
domestic Visa payments applicable in the Member States (these are
not part of Visa International's notification).

22.11.2002

EN

Official Journal of the European Communities

L 318/23

6.2. COMMENTS FROM THIRD PARTIES

(35)

Following the publication of a 19(3) notice on 11
August 2001, 140 replies were received from third
parties: two from payment card systems other than Visa,
one from a bank, two from national competition autho-
rities, one from a private individual and the remaining
replies
from retail merchants or organisations of
such (22).

(36) One other card payment system commented that

it
failed to understand how in law, a reduction in the level
of a price could have any relevance for the granting of
an exemption; it had the impression that the Commis-
sion was acting as a price regulator in this regard and
thus abusing its powers. It held that capping MIFs at or
below relevant costs would undermine the development
of
four-party card payment systems and slow down
innovation and technological development. In its view
MIFs do not restrict competition at all. The second card
payment system to reply, while defending MIFs as
inherent in a four-party card payment system, consid-
ered that the cost of any free funding period concerns
only the relationship between a card issuer and a card-
holder, and noted that that cost is excluded from the
calculation of its own MIF. It also opposed the transpar-
ency provisions, on the grounds that it is unprecedented
to oblige the revealing of wholesale costs to retail custo-
mers.

(37) One of the national authorities that replied considered
that the changes to the Visa MIF did not justify a nega-
tive clearance, but did not state whether they merited an
exemption,
in its view. According to another national
authority an MIF in a four-party card payment scheme is
a price fixing agreement within the meaning of Article
81(1), which may however qualify for exemption,
provided that the level of the fee is not excessive. In this
context it held that the costs of processing and some of
the costs of the ‘payment guarantee’ relating to fraud
may be included in calculating the appropriate level of
the MIF; however it did not consider the free funding
period and the cardholder default element
in the
‘payment guarantee’ as justified cost components in the
MIF.

ment of Objections in September 2000, as not justifying
a change in the Commission's position. Some replies
nevertheless welcomed the improvements made by Visa
to its MIF, but most regarded the changes as minor in
their effect. Specific points made on consumer cards
included the following (23):

(a) debit

cards

cross-border
are hardly used for
payments (mainly for ATM cash withdrawals), and
therefore the seemingly drastic reduction in the MIF
for such cards will be of limited effect;

(b) there are inadequate safeguards to ensure that Visa's
cost study will be carried out in an independent and
neutral manner; use of an external auditor is not an
adequate guarantee of this, and the cost study should
therefore be carried out by experts designated by the
Commission;

(c) the inclusion of the cost of the ‘payment guarantee’
in the MIF is not justifiable for Visa payments which
are not guaranteed for the merchant, such as ‘card
not present’
transactions (payments by telephone,
mail order, and over the internet);

(d) the reduction of around 20 % in the estimated MIF
revenue for issuing banks is largely a consequence of
cost reductions already decided (such as the EMV
standard for cards), and of the forecast increasing
use of electronic transactions and chip cards, which
already bear a lower MIF than non-electronic trans-
actions;

(e) merchants should not pay for

the free funding
period in particular, since they considered it not to
be at all to their benefit, but only that of the card-
holder. In particular they denied that it led to any
increase in aggregate consumer spending;

(f) some replies opposed the inclusion of processing
costs in the MIF, on the grounds that any processing
carried out by the card issuing bank is for the benefit
of its own customer, the cardholder;

(g) the measures

to increase

transparency, while
welcomed by retailers, will not significantly increase
the negotiating power of merchants, since the MIF
will still effectively constitute a floor to merchant
fees.

(38)

The replies from retailers (and an individual), all consid-
ered the changes to the Visa MIF, compared to the unre-
vised MIF that was the subject of a supplementary State-

(22) Ninety-five of the replies in the latter category had identical text,
and many others displayed a high degree of similarity in their
drafting.

(23) Many replies also commented that since no modifications to the
MIF for Visa commercial cards had been offered since the issuing
of the supplementary Statement of Objections of 29 September
2001, there was no reason for the Commission to change its posi-
tion in this regard, and envisage an exemption. As the MIF for
commercial cards is not covered by the present decision, there is
no need to consider that point.

L 318/24

EN

Official Journal of the European Communities

22.11.2002

6.3. OBSERVATIONS OF THE COMMISSION

(39)

The Commission makes the following observations on
those comments from the complainant and from third
parties:

— the ‘free funding period’ mentioned in recital 36
recital 37 and recital 38(e), is dealt with in recital 89
below,

— processing costs are dealt with in recital 85 below,

— the existence of general overhead costs

in all
economic sectors is not an obstacle to the produc-
tion of meaningful and useful results by the applica-
tion of analytical accountancy methods, in which a
great deal of expertise exists in independent accoun-
tancy firms, some of them specialised in the banking
sector,

— as concerns the points made about the reduction in
the Commission
the level of MIFs in recital 38,
emphasises that reductions in the level of MIFs were
part of a package of modifications proposed by Visa,
together with elements on ‘objectivity’ and ‘transpar-
ency’;
these proposals must be considered as a
package, not in isolation. The Commission does not
consider that in evaluating such a package of propo-
sals under Article 81(3), it is acting as a price regu-
lator (24),

— on debit cards (recital 38(a)), the Commission does
not consider that the market share of such cards is a
criterion for determining whether any modification
to the MIF for such cards qualifies for an exemption,

(40)

— as regards the cost study (recital 38(b)), Visa has
assured the Commission that they will be audited by
an independent firm of accountants, bound by rules
of professional ethics which guarantee its indepen-
dence and with specific experience in payment card
cost studies,

— on ‘Card not present’

transactions (recital 38(c)),
firstly as concerns internet payments, Visa pointed
out that as from April 2002, such payments benefit
from a full ‘payment guarantee’, on condition that a
security software, entitled ‘3-D secure’ be used by the
retailer. The use of this software, whose cost is far
from prohibitive according to Visa,
is taken as
meeting the relevant criteria for benefiting from the
‘payment guarantee’. As for the other category of
‘card not present’ transactions, mail order and tele-
phone payments, Visa confirmed that these do not
benefit
fraud-related
losses, and agreed to create the distinct ‘MO/TO’ MIF
rate described above in section 3.2.3.4 to respond to
this concern,

from any guarantee against

— the Commission does not see the relevance of the
point described under recital 38(d), and reiterates
that the proposed modified MIF scheme must be
considered as a whole,

(24) Rather, it is the complainant EuroCommerce who advocates that
the Commission regulate the level of the MIF, by imposing that it
be set at zero. See footnote 19.

— the benefits

to merchants of

the modified MIF
scheme are dealt with under recitals 92 and 93
below.

II. LEGAL ASSESSMENT

7. ARTICLE 81(1) EC TREATY/ARTICLE 53(1) EEA AGREE-

MENT

7.1. THE RELEVANT MARKET

7.1.1. According to Visa

Visa argues that the relevant product market comprises
all consumer payment Instruments, that is, apart from
(all types of) payment cards also cheques of all types and
cash. To that end Visa refers in particular to the opinion
of several of its members. Moreover, Visa mentions two
previous Commission decisions relating to cheques,
in
which the Commission allegedly recognised substitut-
ability
of
payment (25). In addition, Visa refers to two judgements
of American Courts, stating, in the context of complaints
against respectively the multilateral interchange fee and
the no-discrimination rule in the Visa International
scheme, that the relevant market in which Visa operates
and competes
consumer payment
for
systems (26).

other means

between

cheques

that

and

all

is

(41) As far as the relevant geographical market is concerned,
Visa submits that in the light of global e-commerce on
the Internet and the introduction of the euro, the market
is moving towards an EU-wide or even world-wide
market. This view is according to Visa shared by several
of its members.

(25) Decision of 30.6.1993 under Merger Regulation (EEC) No 4064/89
in Case IV/M.350 WestLB/Thomas Cook which says in recital 9
that ‘… it would seem that travellers' cheques to a certain degree
are in competition with other methods of payment, such as e.g.
credit cards and eurocheques.’ Commission decision of 10.12.1984
in Case IV/30.717 — Uniform Eurocheques (OJ L 35 of 7.2.1985,
p. 43) which says in recital 41 that a person travelling to a foreign
country generally has a choice between several means of payment,
such as cash, travellers' cheques, postal payment orders, credit
cards, ATM cards and eurocheques.

(26) Nabanco Bancard Corporation v. Visa USA [596 F. Supp.1231 (S.D.
Fla. 1980) affid 770 F 2d 592 (11th Circ. 1986)] and South Trust
Corporation v. Plus System [71.219 (N.D. Ala. 1995)]. However, in
its litigation with Discover in the United States of America in the
early 1990s, Visa submitted that the market was credit cards only
[SCFC Inc v Visa USA, 36 F3d, 958, 966 10th Circuit, 1994].

22.11.2002

EN

Official Journal of the European Communities

L 318/25

7.1.2. According to EuroCommerce

clearing and settlement with the issuing bank. A
merchant does not need to hold his principal bank
account with his Visa acquirer.

(42)

EuroCommerce considers that a number of distinct
markets are involved. It considers that Visa is active on a
market for card networks, while within the Visa system,
three markets should be distinguished, a market for card
issuing, for card acquiring, and for transaction proces-
sing.

7.1.3. According to the Commission

7.1.3.1. The relevant product market

(43) As the Commission stated in its decision in the Visa case
of 9 August 2001 (27) two types of competition relevant
to payment cards can be distinguished. The first
is
is, different
between different payment systems (that
payment card schemes and possibly means of payment
other than cards), while the second is between financial
institutions (usually banks)
for card-related activities
(essentially issuing of cards to individuals and ‘acquiring’
of merchants for card payment acceptance). The former
of
these two types of competition is conventionally
termed ‘system/network market’ or ‘upstream market’,
while the latter is conventionally termed ‘intra-system or
downstream markets’. On the intra-system markets,
within each four-party payment
for
example),
institutions (in the EU normally
banks) compete with each other to issue cards bearing
that brand or to acquire merchants accepting that card.

system (Visa,

financial

(44)

Both types of competition are affected by the Visa Rules
and by the MIF in particular. Firstly, they affect the
competitive position of Visa with regard to other
payment
systems. Secondly they affect competition
between banks within the Visa system in so far as they
prevent banks
from
other banks by offering different terms and conditions.

from differentiating themselves

(45) As for the intra-system markets, on the issuing side,
banks and other Visa card issuers compete with each
other to issue Visa cards to individuals, and to persuade
their cardholders to use those Visa cards rather than any
other cards that those individuals may hold. A Visa card
is usually (but not invariably) linked to a bank account,
but is not normally a bundled product, which would be
inevitably included in a package with a bank account. A
Visa card can therefore be considered as a distinct
product. On the acquiring side, Visa acquirers (which
may be banks or entities owned by banks)
sign
the services necessary for the
merchants for all of
merchant to accept Visa cards: these normally include
providing authorisation, processing, crediting merchants'
and technical backup services,
accounts,

software

(27) OJ L 293, 10.11.2001, p. 24.

(46) However, the inter-system market needs to be discussed
in greater detail, as the Commission does not share
Visa's view that
the relevant market comprises all
consumer means of payment. This can be explained as
follows. On the inter-system market,
the usage of
different payment systems (and thus market shares) is
determined by the inter-related decisions of consumers
and merchants; for a payment card to be widely used, it
must be accepted by large numbers of merchants, and
then cardholders must choose to use that card among
the different cards they hold and which are accepted by
the merchants
in question. Demand from both
merchants and cardholders must therefore be analysed
in order to determine the correct definition of the system
market (28). Consequently,
two different
payment Instruments be considered as substitutable and
therefore included on the same relevant
inter-system
market, they must be substitutable for both consumers
and merchants. If one or the other user of payment
Instruments considers two different payment Instruments
as not substitutable, then those two Instruments are not
substitutable on the inter-system market.

in order that

(47) On this market, all types of distance payments (giro
transfers and so on) can clearly be excluded since they
cannot be used to pay for items across the counter in
shops.

(48) Next, as concerns cash and cheques, neither of these can
be considered as substitutable with payment cards, either
from the point of view of merchants or that of consu-
mers. For merchants first of all, such non-card payment
instruments are not at all substitutable with cards, since
the loss of revenue for merchants from ceasing to accept
all cards would be far greater than the loss of revenue
level of prices by the
from increasing their general
amount of any small but sustained increase in merchant
fees for all cards.

(49)

For consumers, cash is inconvenient and dangerous to
carry in large amounts, and unsuitable for expensive
purchases. It frequently runs out and must be renewed
(normally by means of a cash withdrawal card). In all
Member States, the average amount of a cash purchase
is far lower than the average amount of a card purchase,
and although for some medium-value payments either
cash or cards are used, this is true only within a limited
range of transaction sizes.

(28) In a four party payment card systems such as Visa, both merchants
(in their capacity as clients of the acquiring services) and card-
holders (in their capacity as clients of the issuing services) are to be
considered as consumers.

L 318/26

EN

Official Journal of the European Communities

22.11.2002

(50)

(51)

Furthermore cheques, in most Member States, are hardly
ever used for over-the-counter purchases (being reserved
for distance payments) (29).
In those Member States
where cheques are often used for face-to-face purchases
(mainly France, the United Kingdom and Ireland), the
regulatory framework sometimes differs (for example, in
France, banks are currently prohibited by law to charge
for issuing cheques). In any case, cheques have signifi-
cantly different characteristics compared with cards (a
chequebook contains a limited number of cheques, a
cheque is often only accepted in conjunction with either
a cheque guarantee card or an identity card, and a
cheque must be filled in, thus losing time).

For all these reasons, cash and cheques can be excluded
from the inter-system market.
It remains to be seen
whether all types of card must be included on the rele-
vant market. Possible criteria for effecting a distinction
between different cards are whether the card is a card
issued for consumer use or for commercial expenses,
whether it can be used internationally or only within the
State where it is issued, and the payment facility offered
by the card (debit, deferred debit or credit). In practice,
credit cards are normally (but not exclusively) interna-
tional, and debit cards are often domestic, although there
is an increasing tendency for domestic debit cards to
have an international debit function through the addi-
tion of a maestro or an electron brand. In many Member
States many individuals hold both a domestic debit card
and an international credit card. But international credit
cards can also of course be used for domestic payments
(the great majority of payments with international cards
are domestic payments), and for very many credit cards,
the revolving credit facility is never used. Visa cards are
always internationally-usable cards, but their payment
facility varies, they can be credit or deferred debit cards,
and sometimes even debit cards (some Visa/CB cards
issued in France, and some Visa/Delta cards issued in the
United Kingdom, for example) (30).

(52)

In conclusion, for the purposes of the present decision,
it is not necessary to make any distinction between types
of payment card in order to define the relevant product
market in the present case, and therefore the relevant
inter-system market is to be considered as comprising all
types of payment card. This does not rule out that a
distinction between consumer and commercial cards,
between national and international cards, or between

(29) It is to be noted in this regard that the Commission decisions
referred to by Visa (see footnote 25), apart from the fact that they
do not take into account the latest developments in the payment
sector, relate to substitutability of other means of payment to
cheques and not the other way around. Moreover, the Commission
in both decisions left the exact definition of the relevant market
open.

(30) The substitutability of debit cards, on the one hand, and deferred
debit and credit cards, on the other, may vary in a domestic and a
cross-border context, as deferred debit and credit cards have certain
features which are particularly beneficial in a cross-border context.
See recital 89 below.

debit, charge and credit cards may be sufficiently impor-
tant to consumers that those types of card constitute
distinct product markets.

7.1.3.2. The relevant geographical market

(53) As the Commission held in its decision of 9 August
2001, the relevant geographic market to be taken into
account
for assessing competitive issues relating to
payment card schemes is still mainly national. However,
since cross-border issuing and acquiring are both now
permitted by Visa (31), are technically feasible, and occur
to some extent, the markets in question are developing
attributes which are more than purely national. In parti-
the
cular,
geographic market may be wider than national markets.
However, since Visa holds an important market position
even on a worldwide market, the precise geographic
market definition in this case can be left open.

inter-system competition,

concerns

as

7.1.3.3. Market position of Visa

(54) On the national markets for cards (international cards
like Visa and Eurocard/Mastercard, store cards and main
national debit schemes) in the EU region Visa holds, in
terms of number of cards in circulation a market share
varying between 4 % in the Netherlands and 69 % in
Portugal. In terms of volume and value of Visa card
transactions Visa's market share varies between respec-
tively 2 % to 95 % and 2 % to 93 % (again in the Nether-
lands and Portugal respectively. However, the market
power of Visa should not only be measured in terms of
important
market
network economies: almost all banks issue Visa cards
and Visa cards are accepted in some four million
merchant outlets throughout the EU. Moreover, a signifi-
cant number of merchant categories, such as airlines,
internet retailers, mail order companies, restaurants, are
dependent on international card networks such as Visa
with numerous users.

shares. Like Europay, Visa has

7.2. DECISIONS OF AN ASSOCIATION OF UNDERTAKINGS/

AGREEMENTS BETWEEN UNDERTAKINGS

(55) As stated in recital 53 of the decision of the Commission
of 9 August 2001 in the Visa International case, the Visa
Rules can be regarded either as decisions of an associa-
tion of undertakings or as agreements between undertak-
ings within the meaning of Article 81 of the EC Treaty/
Article 53 of the EEA Agreement.

(31) As described in the Commission decision of 9 August 2001,

mentioned in recital 2 above, sections 3.2.3 and 3.2.4.

22.11.2002

EN

Official Journal of the European Communities

L 318/27

7.3. NECESSITY OF THE MIF FOR THE OPERATION OF THE

VISA SYSTEM

7.3.1. According to Visa

(56)

In Visa's view its MIF does not fall within the scope of
Article 81(1). To that end Visa argues that the Visa
payment service is jointly provided by the Visa member
banks and that the MIF is a device enabling this business
to function most efficiently and effectively. In particular,
in the absence of joint action with regard to the MIF the
banks would take no account, or too little account of
the ‘positive externalities generated by their decisions’.
Visa refers in this context to the Commission's Guide-
lines on Horizontal cooperation, in particular paragraph
24 thereof, stating that horizontal cooperation ‘between
competing companies that cannot carry out the project
or activity covered by the cooperation’ will not
fall
its very nature (32).’
‘because of
within Article 81(1)
According to Visa its MIF is covered by this paragraph
and hence does not fall within the scope of Article 81(1)
by its very nature.

(57) As a subsidiary argument, Visa submits that, in the event
the Commission were to take the view that the MIF
restricted competition, the MIF would qualify as an ancil-
lary restraint and as such fall outside Article 81(1) since
its MIF would be directly related and necessary for the
functioning of the Visa system.

7.3.2. According to the Commission

(58)

The Commission disagrees with the arguments put
forward by Visa that its MIF falls outside the scope of
Article 81(1). To start with,
the Commission doubts
whether it is correct that none of the Visa members can
‘carry out the project or activity covered by the coopera-
tion.’ It seems that at least the Visa Group members and
larger banks in Visa are capable of offering a card
payment system alone. This is proven for example by
the fact that Citigroup is the owner of Diners' Club, a
competing card system.

(59)

Secondly,
least as
the Commission accepts that, at
concerns the medium-sized and small banks in Visa, the
cooperation enables them to provide a service that they
could not provide individually. This is why the Commis-
sion has not objected to the majority of the rules noti-
fied by Visa concerning the functioning of the Visa Inter-

(32) OJ C 3, 6.1.2001, p. 2.

it cannot be
national payment card scheme. However,
argued that the MIF itself enables the Visa member banks
to offer the Visa card service, since Visa itself admits that
the Visa scheme would exist without the MIF. Visa only
says that without the MIF ‘the scale of Visa's operations
would be greatly reduced and so would its competitive
impact. The “product” offered to both classes of user
could be different and inferior; cardholders would get
access to a smaller network of merchants and merchants
to a smaller pool of cardholders’. Such arguments are
however to be considered under Article 81(3) EC/Article
53(3) EEA and not under Article 81(1)/Article 53(1)
EEA; where the question is whether the clause is techni-
cally necessary for the operation of the Visa payment
scheme. The only provisions necessary for the operation
of the Visa four-party payment scheme, apart from tech-
nical arrangements on message formats and the like, are
the obligation of
the creditor bank to accept any
payment validly entered into the system by a debtor
bank and the prohibition on (ex post) pricing by one
bank to another (33). Accordingly, it is in theory techni-
cally feasible for the Visa scheme to function with alter-
native arrangements than an MIF, not involving collec-
tive price
For
issuing banks could recover their costs in
example,
whole or in part from cardholders.

between undertakings.

agreements

(60)

In conclusion, the MIF in the Visa scheme is not ‘by its
nature’ outside the scope of Article 81(1) EC/Article
53(1) EEA, nor to be regarded as an ancillary restraint.

7.4. RESTRICTION OF COMPETITION

7.4.1. According to Visa

(61)

Visa submits that its MIF does not restrict competition
within the meaning of Article 81(1) either between Visa
acquirers or among Visa issuers, or between card
payment systems nor between various payment instru-
ments. In particular, according to Visa its MIF does not
involve price fixing. It does not consider its MIF as a
price for
to
acquirers or merchants. Rather it considers the MIF as a
transfer of costs between undertakings, which are coop-
erating in order to provide a joint service in a network
characterised by externalities and joint demand (see
recital 14).

specified services provided by issuers

(33) See in this sense also the Dutch banks acceptance giro decision of
8 September 1999 (OJ L 271, 21.10.1999, p. 28), stating that, for
the proper functioning of the payment system at stake joint agree-
ments on technical specifications and procedural aspects of transac-
tions processing are necessary. Also, an a priori agreement on the
level of charges (that is, whether to charge or not and, in the affir-
mative, how much) was held to be necessary, but not necessarily in
the form of an MIF (recital 46).

L 318/28

EN

Official Journal of the European Communities

22.11.2002

(62)

that

the prices

in a three-party payment
Visa also points out
system, such as American Express, the owner of the
payment scheme is free to allocate costs between the
issuing and acquiring side of its activity, and freely calcu-
late
to cardholders and to
merchants in the way which it believes to be in the best
interest of its system. Such a three-party system would
implicitly also contain an MIF. Visa contends that to
prohibit a four-party system from doing the same by
means of an explicit MIF would amount to discrimina-
tion against four-party systems.

charges

it

7.4.2. According to EuroCommerce

(63)

EuroCommerce considers the MIF to be ‘a price fixing
cartel and therefore a hard-core infringement of compe-
tition law’. Under these conditions it believes that no
exemption is possible.

7.4.3. According to the Commission

(64)

For the reasons given below, the Commission considers
that the MIF in the Visa system restricts competition
within the meaning of Article 81(1) EC/Article 53 EEA
by restricting the freedom of banks individually to decide
their own pricing policies. Moreover the MIF has a
restrictive effect on competition among Visa issuers and
among Visa acquirers.

(65) As concerns the arguments put forward by Visa, the
Commission does not accept that the MIF is a transfer of
costs between undertakings which are cooperating in
order to provide a joint service in a network charac-
terised by externalities and joint demand. The Commis-
sion does accept that a four-party payment scheme is
characterised by externalities, and that there is interde-
pendent demand from merchants and cardholders, but
not that there is joint supply of a single product. Visa
card issuers and acquirers each offer a distinct service to
a distinct customer. Issuing and acquiring are fundamen-
tally different activities, involving different specialisations

and costs. Thus the MIF cannot be considered as an
exchange of costs between partners in a production joint
venture.

(66)

(67)

(68)

Rather, according to the Commission, the MIF is an
agreement between competitors, which restricts
the
freedom of banks individually to decide their own
pricing policies, and distorts the conditions of competi-
tion on the Visa issuing and acquiring markets. All Visa
banks issue Visa cards and are thus competitors on the
Visa issuing market. Some Visa banks are also acquirers,
and compete with each other on the Visa acquiring
market. Both these activities are affected by the MIF, and
the Visa member banks are thus competitors as concerns
their agreement on the MIF. In particular, the agreement
on a collective MIF between the banks involved is likely
to have an effect on price competition at the acquiring
and issuing level since the MIF agreement will fix a
significant part of the parties' final costs and revenues
respectively (34).

The Commission in earlier decisions has also concluded
that a MIF amounts to a restriction of competition under
Article 81(1) EC/Article 53(1) EEA (35). Issuing banks are
required to charge acquiring banks a certain fixed fee
and are therefore prevented from developing at whole-
sale level an individual pricing policy vis-à-vis acquiring
banks in so far as they provide services to them (for
example a ‘payment guarantee’ for most transactions).

The MIF moreover has as its effect to distort the beha-
viour of acquiring banks vis-à-vis their customers (at
resale level), because it creates an important cost element
(according to EuroCommerce on average approximately
80 % of the merchant fee) which is likely to constitute a
de facto floor for the fees charged to the merchants they
acquire, since otherwise the acquiring bank would make
a loss on its acquiring activity (36).

(34) See in this context the Commission decision in the case ‘Rheims II’
(OJ L 275 of 26.10.1999), also with respect to the dissuasive effect
which a default fallback agreement has on the conclusion of bilat-
eral agreements among the parties.

(35) See in this sense Commission decisions ABB (OJ L 7, 9.1.1987, p.
27), ABI (OJ L 43, 13.2.1978, p. 51), NVB (OJ L 253, 30.8.1989,
p. 1) and NVB II (OJ L 271, 21.10.1999, p. 28). Compare also the
Commission's ‘Notice on the application of the EC Competition
rules to cross-border credit transfers’
(13.9.1995, SEC(95) 1403
final) which says:
interchange fee agreement is a
restriction of competition falling under Article 85(1) now 81(1)
because it substantially restricts the freedom of banks individually
to decide their own pricing policies.’

‘a multilateral

(36) See in this sense also Visa's own economic experts in the USA
proceedings, David Evans and Richard Schmalensee, acknowledging
that ‘interchange fee place a floor under the price that merchants
pay their acquirers for processing card transactions’ … ‘the only
significant price the system sets is the interchange fee’ … ‘since the
acquirer has to pay the issuer an interchange fee for each transac-
tion, that fee sets a floor under the merchant discounts’ (in their
book ‘Paying with plastic’, pp. 113 and 155).

22.11.2002

EN

Official Journal of the European Communities

L 318/29

(69) However, the Commission does not consider the MIF
agreement to be a restriction of competition by object,
since a MIF agreement in a four-party payment system
such as that of Visa has as its objective to increase the
stability and efficiency of operation of that system (see
section 8.1.1 below), and indirectly to strengthen
competition between payment systems by thus allowing
four-party systems to compete more effectively with
three-party systems.

7.5. APPRECIABLE EFFECT

7.5.1. According to Visa

(70)

Visa contends that its MIF does not restrict competition
to an appreciable extent within the meaning of Article
81(1). As concerns competition between Visa acquirers
for merchants, Visa puts forward three arguments. First,
it says that the MIF represents only one element of the
merchant service charge (MSC) paid by a merchant to its
acquiring bank. Secondly, merchants are said to be sensi-
tive to differences in the level of this charge and thirdly,
Visa says that acquiring banks compete on elements
other than price alone. Moreover, Visa submits that the
MIF does not appreciably restrict competition between
Visa issuers in relation to their customers since the MIF
neither prevents issuers from charging fees to their card-
holders nor from increasing those charges to recover
their costs.

7.5.2. According to the Commission

7.6. EFFECT ON TRADE BETWEEN MEMBER STATES AND

BETWEEN THE COMMUNITY AND THE EEA

(72) As the Commission stated in its decision of 9 August
2001, Visa cards are by their nature cross-border means
of payment, that is, cards which can be used by card-
holders not only in the country where the cards are
issued, but also for payments at merchant outlets or for
cash withdrawals in other countries. According to Visa,
in 1998 of all Visa card transactions at merchant outlets
in the EU/EFTA about 10 % were intra-regional transac-
tions (see recital 11). The Visa Rules are applicable at
least in the whole of the EEA, therefore the various
provisions contained in these rules have at least poten-
tially an effect on trade between the Member States and
between the Community and the EEA. Visa does not
deny that its rules have or potentially can have an effect
on trade between Member States.

7.7. CONCLUSION ON ARTICLE 81(1) OF THE EC TREATY/

ARTICLE 53 OF THE EEA AGREEMENT

(73)

The MIF in the Visa system amounts to an appreciable
restriction of competition within the meaning of Article
81(1) of the EC Treaty and Article 53(1) of the EEA
Agreement.

8. ARTICLE 81(3) OF THE EC TREATY/ARTICLE 53(3) OF

THE EEA AGREEMENT

8.1. FIRST AND SECOND CONDITIONS: TECHNICAL AND
BENEFIT OF

PROGRESS

TO THE

ECONOMIC
CONSUMERS

(71) As concerns the acquiring market, even though the MIF
may be not be the only component of the MSC, it is by
far the main cost component, representing according to
EuroCommerce about 80 % of the MSC. The MIF there-
fore effectively imposes a floor to the MSC. Moreover,
the economic impact of the MIF is very substantial. With
over 145 million Visa cards in the EU region, over four
million merchants accepting Visa cards and about 5 250
million Visa transactions a year, of which [about 10 %]*
are intra-regional transactions, the revenue for issuing
banks arising from the Visa intra-regional MIF amounts
to […]*. As far as the impact on the issuing market is
concerned, the MIF may discourage innovation and effi-
ciency on the issuing market and may lead to the over-
supply of cards (37).

(37) The argument that consumers are encouraged to become card-
holders by reason of the scope of the system, and that there are
advantages to the system of encouraging consumers to become
cardholders, would seem to be true only in respect of geographic
markets where the take up of cards has not reached saturation
point. This may be the case only for certain Member States and for
international transactions.

8.1.1. According to Visa

(74) Although Visa accepts that the MIF is not necessary for
the existence of the Visa system, Visa submits that the
MIF was introduced precisely in order to promote the
wider distribution and acceptance of Visa cards and all
the services they provide. It says that the generation of
positive network effects and hence the expansion of the
system is dependent on the existence of the MIF.

(75)

In Visa's view maximising usage of the system through
the MIF optimises overall consumer satisfaction. Without
the MIF there would be fewer Visa cardholders because
either the fees to cardholders would increase or issuers
would spend less money recruiting cardholders. This
would have a knock-on effect on the number of
merchants accepting Visa cards. According to Visa
merchants obtain many benefits from the Visa system,
such as incremental sales, cost savings and speed of card
transactions over cash and cheques payments.

L 318/30

EN

Official Journal of the European Communities

22.11.2002

The MIF, according to Visa, balances the conflicting
interests of merchants and cardholders, by allocating the
costs of the system between the two types of users in a
way that corresponds with the marginal benefit
that
each user derives from the system, and thus maximising
overall use of the system. Visa argues that it would be
against Visa's own interest to set the MIF too high or too
low. A MIF that was too high would, according to Visa,
lead to merchants dropping out of the system; Visa cards
would then be less attractive to cardholders, and card-
holders would then drop out of the system; this could
set off a negative spiral which would end with a consid-
erably contracted Visa system, or even possibly the end
of the Visa system. An MIF that was too low would,
according to Visa, have the opposite effect, but with the
same end result.

8.1.2. According to EuroCommerce

Firstly, EuroCommerce considers that no exemption for
the Visa MIF is possible since, in its view, the MIF consti-
tutes a price cartel and is as such a restriction of compe-
that any efficiency gains
tition by object.
produced by a cartel cannot outweigh its negative
effects.

It adds

(80)

(76)

(77)

(78)

EuroCommerce further argues that the MIF does not
fulfil the first condition for exemption, as it slows down
innovation, since banks concentrate on maintaining and
developing their MIF income, to the detriment of devel-
oping new card-related products and services. On the
second condition, EuroCommerce advances that the MIF
is detrimental to merchants and unfairly advantageous to
cardholders, since it transfers to merchants costs which
relate to services (‘free benefits’) provided to cardholders,
who in turn provide pressure on merchants to accept
cards. In particular,
it denies that the ‘payment guar-
antee’ has been requested by merchants or should be
in its reply to the
paid for by merchants. Moreover,
Article 6 letter of 7 September 2001, EuroCommerce
argued that the cost of processing and the cost of the
free funding should not be included in the MIF either.
Thus, according to EuroCommerce, the benefits each
consumer gets from the Visa system are not reflected in
the setting of the MIF in a proportionate manner, and
the MIF thus fails to meet the second condition for
exemption.

8.1.3. According to the Commission

cartel and thus as inherently non-exemptible. Examples
exist of agreements on prices which can meet the condi-
tions for an exemption (38). Furthermore, a MIF is not a
price charged to a consumer, but a remuneration paid
between banks who must deal with each other for the
settlement of a card payment transaction and thus have
no choice of partner. The absence of some sort of
default rule on the terms of settlement could lead to
abuse by the issuing bank, which is in a position of
monopsony as regards the acquiring bank for the settle-
ment of an individual payment transaction. Thus, some
kind of default arrangement is necessary, but the ques-
tion of whether it qualifies for exemption or not will
depend on the details of the arrangement.

the costs of

independently of

Prior to the modifications described above in section
3.2.3 the Visa MIF was considered by the Commission
(in its Supplementary Statement of Objections of 29
September 2000) as not satisfying in particular the
second condition of Article 81(3), notably because the
Visa EU Board was free to set the MIF at any level it
wished,
the specific
services provided by issuing banks to the benefit of
merchants. Furthermore, because the MIF was a business
secret, those who in the end pay the MIF, that is the
merchants, could not know its level and therefore could
therefore not effectively negotiate the merchant fee. The
Commission found that there were upward pressures on
the level of the previous MIF, in particular, the fact that
most banks were members of both Visa and the
competing Eurocard/Mastercard system, and therefore
were likely to issue whichever of the two brands of card
had the higher interchange level and brought them the
most revenue. The possibility of merchants ceasing to
accept Visa cards if the Visa MIF was too high was not
sufficiently strong to constrain this upward pressure, as
long as the MIF did not reach exceedingly high levels.
This was due to the fact that once a merchant already
accepts Visa cards, when faced with an increase in the
MIF, and consequently an increase in merchant
fees,
recovering this cost increase through a very small price
increase for all goods sold will normally lead to a smaller
in turnover than ceasing to accept Visa cards (39).
fall
There was thus a possibility that the previous MIF could
have been set at a revenue-maximising, output-limiting
level, rather than the level maximising the output of the
Visa system. These concerns have been mitigated by the
revised Visa MIF, as explained below.

(79) As a preliminary remark, it is not the case that an agree-
ment concerning prices is always to be classified as a

(38) See for example Article 3 of Regulation (EEC) No 4056/86 in the
transport sector, providing for an exemption for price agreements
between liner conferences under certain conditions and obligations.
See also Article 4 of Regulation (EEC) No 1617/93, providing for a
group exemption for price agreements between airlines with regard
to IATA interlineable fares (OJ L 155 of 26.6.1993, p. 18).

(39) This ‘lock in’ effect is illustrated by the extreme paucity of examples
of merchants who have decided to cease to accept Visa cards,
having once accepted them.

22.11.2002

EN

Official Journal of the European Communities

L 318/31

it is not disputed that
Turning to the first condition,
payment card schemes like Visa's represent, as such,
considerable economic and technical progress. The ques-
tion is whether the Visa MIF agreement, in its proposed
modified form, specifically contributes to that progress.
This question is intimately linked to that of benefits to
consumers, therefore it is logical to take the first and
second conditions together.

Concerning the second condition, it should be noted that
four-party payment card schemes like that of Visa are
networks with two distinct and interdependent types of
consumers, merchants and cardholders. Each type of
consumer would prefer the costs of the system to be
paid by the other user: merchants thus have an interest
in no,
low or negative interchange fees (that is inter-
change fees paid by the issuer to the acquirer), while
cardholders have an interest in positive interchange fees
(that is, paid by the acquirer to the issuer).

(85)

(86)

(81)

(82)

(83)

The Visa network,
like any network characterised by
network externalities, will provide greater utility to each
type of user the greater the number of users of the other
type: the more merchants in the system, the greater the
utility to cardholders and vice versa. The maximum
number of users in the system will be achieved if the
cost to each category of user is as closely as possible
equivalent to the average marginal utility of the system
to that category of user. The Commission accepts that
this is not necessarily achieved with each bank simply
charging its own customer, since one of the features of a
four-party payment card scheme is that the card issuing
bank provides specific services to the benefit of the
merchant, via the acquiring bank. Given the difficulties
of measuring the average marginal utility of a Visa card
payment
to each category of user, some acceptable
proxy for this must be found, which meets the concerns
of the Commission, as expressed in the Supplementary
Statement of Objections of 29 September 2000 (40).

(84)

To this end, Visa has in its proposal for a modified MIF
identified three main cost categories which in its view
constitute an ‘objective benchmark’ for the level of costs
of supplying Visa payment services and constitute an
‘objective benchmark’ against which to assess the Visa
intra-regional MIFs paid by acquirers to issuers for POS
transactions. These cost categories are (a) the cost of
processing transactions;
(b) the cost of providing the
‘payment guarantee’ and (c) the cost of the free funding
period.

(40) See recital 80.

The Commission sees no reason to contest the relevance
of these three cost categories and accepts Visa's point of
view that they can all be said to be, at least in part, to
the benefit of the merchant. First, on the processing
service the Commission accepts that apart from account
maintenance to the benefit of the cardholder, the issuing
bank also processes the request for payment of its debt
to the acquiring bank and ultimately to the merchant,
which incurs some administration costs. There is no
doubt that the merchant benefits from the latter proces-
sing services, in particular in the context of international
payment card transactions. EuroCommerce also initially
accepted this (41).

the
Secondly, as concerns
the payment guarantee,
Commission accepts that the ‘payment guarantee’
is a
kind of insurance against fraud and cardholder default
for merchants, and the ‘payment guarantee’ element in
the revised Visa MIF is a kind of insurance premium,
which is of importance in particular in the context of
international card payments. In general, retailers benefit
from a ‘payment guarantee’ because without
they
would have few means of obtaining payment from Visa
cardholders from other Member States in the case of
fraud or insolvency. Fraud in particular, is much higher
for cross-border transactions than for domestic ones. No
evidence has been provided to the Commission to
suggest that in the absence of a payment guarantee,
insurance against fraud and credit losses linked to inter-
national card payments would be widely available to
retailers, or if so, that it would be available on terms
affordable to medium-sized and small retailers.

it

(87) As to the cost element of

the ‘payment guarantee’
relating to bad debt write-offs arising from cardholder
default the important consideration is that in the absence
of this element of the ‘payment guarantee’, merchants
would also have to insure themselves against the possibi-
lity of the customer not respecting his card payment for
reason of insolvency. Such insurance would be likely to
be particularly expensive for cross-border payments, as
the recovery of debts is more difficult in a cross-border
context than domestically. The risk of default is also
higher in a cross-border context, since cardholders with
a history of defaulting are particularly likely to carry out
purchases abroad, where they are less likely to be on any
default ‘black lists’. In any event, fraud and insolvency
is more likely to be efficient if done by the
control

(41) See the complaint of 22 May 1997, p. 5,

‘the charge that banks
impose on merchants, the merchant fee, does not correspond to
the price of the service that he receives, or only for a very small
part of that amount. The service rendered to the merchant consists
of the processing of the operation’. Letter of 22 January 1998, p. 3
‘the only service that a card transaction generates is the processing
of that transaction’.

L 318/32

EN

Official Journal of the European Communities

22.11.2002

issuing bank. The introduction of an optional ‘payment
guarantee’ could lead the issuing banks to relax their
controls, thus leading to an increase in the level of fraud
and insolvency.

cannot, in the absence of a contractual relation, charge
the costs
related to these services directly to the
merchant (unlike in some national schemes, such as ec-
Karte in Germany, where issuers charge merchants
directly for the provision of an (optional) guarantee).

(88) Without a ‘payment guarantee’, some retailers would
probably consider the risk of accepting Visa cards to be
too great, and since the ‘Honour All Cards’ rule obliges
them to accept all Visa cards, they would have no choice
but to cease to accept Visa cards completely. Visa cards
would then be less attractive to cardholders, and some
of these might then give up their Visa card, leading to a
downward spiral in the size and level of usage of the
Visa system, and a loss in turnover for all merchants (42).

(91)

In conclusion, the proposed modified intra-regional MIF
in the Visa International Rules contributes to technical
and economic progress in the meaning of Article 81(3)
first condition, namely the existence of a large-scale
international payment system with positive network
externalities.

(89)

this

is not proven that

Thirdly, the ‘free funding period’ allows Visa cardholders
to make purchases at any merchant who accepts Visa
cards as if they all offered free credit. According to Visa,
this benefits merchants because it encourages card-
holders to increase their consumption by making addi-
tional purchases which otherwise they may not have
made (43). While it
facility
increases total aggregate consumption, it is plausible that
it may well stimulate cross-border purchases by card-
holders travelling abroad, who usually do not have the
means to check their account balance and cannot delay
their purchase to later. Without the free-funding period,
cardholders travelling abroad are likely to be more
prudent with regard to their overall spending for fear of
taking their account into the red. Whilst this phenom-
enon may have a neutral overall effect on total
it nevertheless facilitates and
consumption in Europe,
encourages
as opposed to
cross-border
domestic spending. In this light the inclusion of the free-
funding period in a MIF for cross-border purchases can
be justified, primarily as it benefits merchants with
whom such purchases are made, but also as it promotes
cross-border purchases within the single market. The
Commission therefore sees no reasons, for the purposes
and duration of the present exemption (44), to consider
as unjustified the inclusion in the Visa intra-regional MIF
of the cost of the free funding period, as a feature of
international charge and credit cards that partly benefits
the merchant for cross-border transactions.

spending

(90) Given that the three services in question are provided by
Visa issuing banks to merchants indirectly, via the
acquiring bank, in the payment system of Visa issuers

(42) See also point 9 of

the
European Communities in Case C-18/92 Bally, ECR [1993], p. I-
2871).

the Court of

judgment of

Justice of

(92)

The modified MIF (as described above), which is based
on objective criteria (costs) and transparent for users of
the Visa scheme who end up paying the MIF in whole or
in part, can be said to provide a fair share of the benefits
to each category of user of the Visa system, and thus to
meet the concerns of the Commission. In particular, the
level of the MIF will not exceed the cost of the specific
services on which its calculation is based (as will be
guaranteed by the cost study which will be carried out at
a representative sample of Visa members and audited by
an independent expert) and the Visa EU Board may set it
at a lower level. The modified Visa MIF is therefore to
the benefit of merchants in so far as the MIF cannot in
future exceed the cost of the services which issuing
banks provide wholly or partly to the benefit of
merchants.

(93) As concerns the comments made by merchants in reply
to the Commission's 19(3) and by EuroCommerce in its
reply to the Article 6 letter of 7 September 2001, on the
alleged minor effect of the changes to the Visa MIF, it
should be noted that the practical effect of the changes
to the Visa MIF (both to merchants and to cardholders)
are inherently uncertain since the MIF is a wholesale
price only. The present exemption is granted on the
basis of the present facts: an exemption for a determined
period of time is needed to look at the new balance of
interests and to allow the Commission to review the
impact of the revised MIF again if necessary.

a

‘contracting out’ of merchant

(43) Visa also argues that the free funding benefits merchants by repre-
senting
credit
programmes. However, this argument seems weak, in light of the
fact that many merchants who accept Visa cards nevertheless offer
consumer credit, and other merchants who accept Visa cards have
never desired to operate a consumer credit programme.

consumer

(44) It should be re-emphasised in this context that the present exemp-
tion only applies to the Visa intra-regional MIF as applied to cross-
border transactions. An analysis of the exemptability of the inclu-
the free funding period in a MIF for domestic card
sion of
payments might conceivably reach a different conclusion.

(94)

the modified Visa MIF is not
For Visa cardholders,
directly more advantageous
than the previous one.
However, in so far as it could lead to reduced costs for
it may lead to more merchants accepting
merchants,

22.11.2002

EN

Official Journal of the European Communities

L 318/33

the level of costs of

Visa cards, which would be in the interest of card-
holders. In cases where there is strong price competition
between merchants, the fall
in merchants' costs could
lead to reduced prices for all consumers, including those
who pay by Visa card. Moreover, the changes to the MIF
are not considered by Visa as likely to lead to any
increases in charges to cardholders. Given that in Visa's
proposal
the three services
mentioned above will effectively form a ceiling to the
level of the MIF, the setting of the MIF at a level lower
than that of the cost of the services in question could
have been expected as potentially detrimental to card-
holders, but on the other hand, the services in question
are arguably to the benefit of both user in different
proportions. Therefore it is appropriate to allow banks
some leeway in splitting the costs between cardholders
and merchants. Moreover, the setting of a MIF below
costs will normally have as its goal the encouragement
of improvements in the system […]*, in the interest of
all users of the system.

(95)

In conclusion, the amended MIF contributes to technical
and economic progress, while providing a fair share of
these benefits to each of the two categories of user of
the Visa system, and thus meets the first and second
conditions of Article 81(3).

8.2. THIRD CONDITION — INDISPENSABILITY

8.2.1. According to Visa

the Visa system at

issuers' costs nor bilateral

(96) According to Visa its MIF is indispensable for the func-
tioning of
its optimum level.
According to Visa neither direct charging of cardholders
interchange arrange-
for all
ments are feasible options for the Visa scheme. More-
over, according to Visa it cannot be concluded from the
mere absence of an MIF to be paid by an acquirer to an
issuer in a given payment card system that the MIF in
the Visa system in the EU is unnecessary. In particular,
Visa says that the various payment card schemes referred
to in the Supplementary Statement of Objections as
examples of card schemes functioning with alternative
financing methods to an MIF do not prove that the Visa
MIF is not objectively necessary for the Visa system.
These card systems, according to Visa, are not compar-
able with the Visa system as they are all different in
some way. The German ec-Karte system is a domestic
debit card system, and furthermore has infrastructure
that permits direct payments between merchants and
card issuers. The Australian EFTPOS system (another
domestic debit card system) involves a small number of
banks among which bilateral agreements are feasible.
The Canadian Interac system in fact has a MIF, albeit set
at a level of zero.

8.2.2. According to EuroCommerce

(97)

EuroCommerce argues that the MIF is not necessary to
make the payment card systems function, nor to achieve
usage maximisation and stability of the system. In Euro-
Commerce's view, no services are provided between
issuing bank and acquiring bank, therefore there is no
need for any payment. The MIF is rather a tax, or levy,
which has generated huge costs which are eventually
paid by the consumer in higher retail prices.

8.2.3. According to the Commission

(98)

the existence of

First of all, it should be emphasised that the indispensa-
bility being considered under this heading is not indis-
pensability to the existence of the Visa system, but indis-
pensability for the achievement of the benefits identified
in
under the first condition of Article 81(3), that is,
particular, the positive network externalities. The Visa
MIF is, on the admission of Visa itself, not indispensable
for
the Visa system. However, as
explained above, in the absence of a direct contractual
relationship between issuers and merchants, without
some kind of multilateral interchange fee arrangement, it
would not be possible for issuers to recover
from
merchants the costs of services which are provided ulti-
mately to the benefit of merchants, and this would lead
to negative consequences, to the detriment of the entire
system and all of its users.

(99) However, only a MIF which is the least restrictive of
competition out of all the possible types of MIF could be
considered as indispensable,. The Commission notes in
this regard that while the former MIF allowed Visa
member banks freedom to set the MIF at any level they
choose, without any objective criteria and in particular
regardless of the actual cost of providing the specific
services in question, the modified Visa MIF is based on
objective criteria (costs) and transparent (in the sense
that its level will on request be disclosed to merchants).
The Commission accepts that such an MIF can be
considered as indispensable since it has not been estab-
lished in the context of an international payment card
scheme with thousands of members that any alternative
financial arrangement than the modified MIF would be
both feasible and less restrictive of competition, while
maintaining the technical and economic progress identi-
fied above under Article 81(3) first condition.

(100)

In this regard the Commission takes into account that it
has not been established that there are examples of an
international credit or deferred debit card scheme that
functions without an MIF. While the various domestic
payment systems referred to by EuroCommerce (see
recital 27) all have points of similarity with the Visa
system, they also have differences, which preclude any
involve
useful

comparison. Those

systems

either

L 318/34

EN

Official Journal of the European Communities

22.11.2002

fewer banks than the Visa system, or have direct links
between issuing banks and merchants, or have a MIF
fixed at a zero level, or have an on-line authorisation
system, which considerably diminishes fraud.

8.3. FOURTH

CONDITION:

NON-ELIMINATION

OF

COMPETITION

8.3.1. According to Visa

(101) Although theoretically, bilateral agreements may be
made on the level of interchange, a multilateral inter-
change fee is likely to lead to efficiency gains in the
context of the Visa international payment scheme due to
lower negotiation and transaction costs (45). With more
than 5 000 banks in the Visa EU Region it is likely that
due to negotiation and transaction costs bilateral inter-
change fees though theoretically possible, would result
in higher and less transparent fees. This is in its turn
likely to lead to higher merchant fees. For this reason, a
default fallback MIF is necessary for cases where two
banks have not been able, or have not tried, to reach a
bilateral agreement.

(102)

In the absence of an interchange arrangement,
the
issuing banks would have to absorb the costs of such
services, or charge them directly in whole or in part to
the cardholder. Absorbing the costs would probably lead
to them being recovered by higher fees for unrelated
services (cross-subsidisation). The charging of the costs
of such services to the cardholder (in the form of
increased annual fees for Visa cards or possibly to trans-
action-related fees) might be considered as such a less
restrictive alternative compared to the MIF, because card-
holder fees would be determined unilaterally by each
bank and not by multilateral agreement. However, given
the conclusions reached above in recital 85 to 89 about
the beneficiaries of the different cost elements included
in the revised Visa MIF, charging those costs to card-
holders might destabilise the Visa system, as some card-
holders could make less use of their Visa cards, consid-
ering the price now to be excessive as it includes the
cost of services which are not in whole provided to
them, but rather to merchants. This reduction in the use
of Visa cards could in turn make the card less attractive
to merchants, thus setting off a downward spiral in the
use of the Visa system.

(104) According to Visa the MIF does not afford Visa the
possibility of eliminating competition in respect of a
substantial proportion of the products in question. Visa
notes in this regard that its member banks are exposed
to intra-system as well as inter-system competition.
According to Visa the determination of the MIF by Visa
member banks takes place in a highly competitive envir-
onment.

8.3.2. According to EuroCommerce

(105) EuroCommerce considers that the fourth condition is
not met because Visa together with Europay, form a
duopoly with a market share of 80 %.

8.3.3. According to the Commission

(106) The MIF does not eliminate competition between issuers,
which remain free to set their respective client fees.
Moreover, although it sets de facto a floor in the
merchant fees it does not eliminate competition between
acquirers either, since acquiring banks remain free to set
the merchant fees and can still compete on the other
components of the merchant fee apart from the MIF.
Nor does it eliminate competition between Visa and its
competitors, particularly Europay. The allegation by
EuroCommerce that Visa would forms a near-duopoly
with Europay is not relevant to an agreement between
Visa members. Although an analogous agreement exists
among Europay members,
the Commission has no
evidence of concertation between Visa and Europay.

8.4. CONCLUSION ON ARTICLE 81(3) OF THE EC TREATY/

ARTICLE 53(3) OF THE EEA AGREEMENT

(107) The modified Visa MIF fulfils the conditions for an
exemption under Article 81(3) of the EC Treaty and
Article 53(3) of the EEA Agreement.

(103)

In conclusion, no alternative,
less restrictive than the
revised Visa MIF, exists at present, which would achieve
the advantages and benefits to consumers identified
under the first and second conditions above, while being
practically feasible in the context of the Visa interna-
tional four-party card payment scheme. Therefore the
revised Visa default intra-regional MIF meets the third
condition of Article 81(3).

(45) This conclusion is not necessarily valid in a domestic context,
where the number of banks may well be far fewer and the effi-
ciency gains of a multilateral arrangement vis-à-vis bilateral agree-
ments may not outweigh the disadvantage of the creation of a
restriction of competition.

9. DURATION OF THE EXEMPTION, AND CONDITIONS

(108) Pursuant to Article 8 of Regulation No 17, a decision in
application of Article 81(3) of the EC Treaty is to be
issued for a specified period and conditions and obliga-
tions may be attached thereto. Pursuant to Article 6 of
Regulation No 17, the date from which such a decision
takes effect cannot be earlier than the date of notifica-
tion. It follows from Article 7(1) of Regulation No 17
that the start of the exemption period cannot be earlier
than the date that the notified agreement satisfied the
conditions for exemption.

22.11.2002

EN

Official Journal of the European Communities

L 318/35

(109) The exemption should therefore take effect as and when
the proposed modified Visa MIF scheme has been imple-
mented in the Visa Rules and is in force until 31
December 2007. For the new MO/TO MIF described at
section 3.2.3.4,
the exemption will enter take effect
when that MIF will be established, and remain in force
until 31 December 2007. This period of time will allow
the Commission to re-examine the practical impact of
the modified Visa scheme on the market, and in parti-
cular its expected effect on merchant fees, also in light
of the comments made by third parties to the 19(3)
notice.

(110)

In order to permit the Commission to verify whether the
changes to the Visa MIF described above in section 3.2.3
are being implemented as Visa has undertaken to do the
decision is subject to the following conditions:

(a) Visa will submit to the Commission, within [12 to
18 months]* after the adoption of this decision, a
copy of
the cost study showing the calculations
based on the three cost categories mentioned above
into figures
in section 3.2.3.2 (data being split
relating to credit and deferred debit cards, and data
relating to debit cards) as well as the relative impact
in terms of value and volume of the different type of
Visa cards. The cost study will be carried out by Visa
and audited by an independent firm of accountants,
which will have to be approved by the Commission.
The data used in the preparation of the cost study
will be provided by a representative sample of Visa
member banks from the Visa EU region,
located
within the EEA. Further cost studies will be prepared,
and copies submitted to the Commission, no less
frequently than every [18 to 36 months]* thereafter;

(b) following the completion of each of the aforemen-
tioned cost studies, the effective level of the MIFs for
consumer cards will not exceed the sum of these
three categories of costs except
in exceptional
circumstances which can be reconciled with Article
81(3) (such as for example to discourage behaviour
which
and
following consultation with the Commission;

progress)

technical

impede

could

(c) Visa will
ments
scheme,

inform the Commission of any amend-
intra-regional MIF

and additions

to its

Treaty and Article 53(3) of the EEA Agreement, to the modified
Visa intra-regional multilateral interchange fee (hereinafter MIF)
scheme, as applied to cross-border point-of-sale transactions
with Visa consumer cards within the European Economic Area,
until 31 December 2007.

The declaration of exemption in paragraph 1 shall apply

2.
subject to the following conditions:

(a) the Visa Board shall, by 4 September 2002 at the latest,
adopt the measures necessary to secure the implementation
of the modified MIF scheme, object of this Decision;

(b) within [12 to 18 months]* of the date of adoption of the
present Decision, and no less frequently than every [18 to
36 months]* thereafter, Visa shall submit to the Commis-
sion a copy of the cost study for debit cards and for
deferred debit and credit cards, calculating a maximum MIF
level based on the following three cost categories:

— the cost of processing transactions,

— the cost of the free funding period for cardholders,

— the cost of providing the ‘payment guarantee’.

That cost study shall be carried out by Visa and audited by
an independent
firm of accountants, approved by the
Commission.

The data used in the preparation of the cost study shall be
provided by a representative sample of Visa member banks
from the Visa EU region,
located within the EEA, repre-
senting more than 50 % of the total volume of Visa intra-
regional point-of-sale transactions;

the effective level of

(c) following completion of each of the cost studies referred to
in subparagraph b,
the MIFs for
consumer cards may not exceed the figure indicated in the
most recent such study as representing the maximum MIF
level, based on the three cost categories specified in subpar-
agraph a, except in exceptional circumstances which, in the
opinion of the Commission, are compatible with Article
81(3) of the Treaty;

(d) Visa shall inform the Commission, within one month of
informing its members, of any amendments or additions to
its intra-regional MIF scheme.

HAS ADOPTED THIS DECISION:

Article 2

Article 1

1. Without prejudice to Article 2, the provisions of Article
81(1) of the EC Treaty and Article 53(1) of the EEA Agreement
are declared inapplicable, pursuant to Article 81(3) of the EC

1.
The provisions of Article 81(1) of the EC Treaty and
Article 53(1) of the EEA Agreement are declared inapplicable,
pursuant to Article 81(3) of the EC Treaty and Article 53(3) of
the EEA Agreement, to the Visa intra-regional interchange fee
for mail order and telephone order transactions (hereinafter
MO/TO transactions), which is the object of this decision, as
applied to cross-border point-of-sale transactions with Visa
consumer cards within the EEA, until 31 December 2007.

L 318/36

EN

Official Journal of the European Communities

22.11.2002

Provided that the declaration of exemption in Article 1
2.
has become applicable, the declaration of exemption in para-
graph 1 shall apply subject to the following conditions:

(a) the Visa board shall adopt, by 30 April 2003 at the latest,
the measures necessary to secure the implementation of the
MO/TO transaction intra-regional interchange fee;

(b) Visa shall comply with Article 1(2)(b) and (d);

(c) following completion of each of the cost studies referred to
in Article 1(2)(b), the effective level of the MIF for MO/TO
transactions may not exceed the figure indicated in the
most recent such study as representing the maximum MIF
level for MO/TO transactions, which shall be based on the
same information on the three cost categories referred to in
Article 1(2)(b), but corrected as to two specific cost cate-
gories, under ‘payment guarantee’ and ‘processing of trans-
actions’ to reflect the costs specific to MO/TO transactions.

Article 3

This Decision is addressed to:

Visa International Service Association
European Union Region
99 High Street Kensington
London W8 5TE.

Done at Brussels, 24 July 2002.

For the Commission

Mario MONTI

Member of the Commission