EU Fines Mastercard $650 Million for Obstructing Merchants’ Cross Border Payments

The European Commission has fined MasterCard €570 million (or $648 Million) for violating antitrust laws by preventing merchants from accessing cheaper services from banks across Europe.

After Visa, MasterCard is the second largest card provider in Europe which accounts for more than half of the non-cash payments made by European consumers and businesses. MasterCard plays a crucial role as it is the platform through which the end payments between the retailers’ bank and the cardholder’s bank are confirmed.

For every payment, the bank of the retailer (the acquiring bank) pays a fee called the “interchange fee”  to the cardholder’s bank (the “issuing bank”). Ultimately this fee is passed on to the retailer who in turn includes it to the customers’ final price. Prior to 2015, the interchange fee varied from country to country across Europe and MasterCard took advantage of this by forcing receiving banks to pay the fee set in their home country.

The European Commission opened a formal anti-trust investigation on MasterCard in 2013 and issued a set of objections in 2015. The Commission claims that MasterCard restricted competition between banks cross border which led to higher prices for retailers and consumers.

Commissioner Margrethe Vestager said in a statement on Tuesday:

“European consumers use payment cards every day, when they buy food or clothes or make purchases online. By preventing merchants from shopping around for better conditions offered by banks in other Member States, Mastercard’s rules artificially raised the costs of card payments, harming consumers and retailers in the EU.”

The European Commission has fined MasterCard €570 566 000 ($648,698,737) on the basis of the Commission’s 2006 guidelines on fines.

Blockmanity’s Take

This is not the first time that a major bank or a payment provider like MasterCard has been heavily fined for abusing its position of power. The settlement of cross border payments has to happen with a middleman which inevitable forces customers to depend heavily on banks and payment providers.

But with the Blockchain technology transactions are carried out peer to peer where the settlement happens in a decentralized trust minimized way. The incentives of the validators are aligned with the network users which provides increased security to the network.

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