European Union: court rules on domestic interchange fees

Edurne Navarro, Ana Encinas Rodríguez.

International Law Office, 16/06/2005

The Court for the Defence of Competition has issued two decisions rejecting applications submitted by two card payment system associations (Sistema 4B and Servired) to obtain individual exemptions for their respective agreements on intra-system interchange fees (ie, fees applied to domestic consumer card transactions in retail outlets when the acquirer's and the merchant's banks are members of the same card payment system association).

The court issued another decision ordering the Service for the Defence of Competition to conduct proceedings aimed at amending or removing the individual exemption which had been granted to a third payment system association (Euro 6000) in 2001.


In 1999 the court submitted to Parliament a report requesting that payment system associations apply for individual exemptions in relation to collective agreements on interchange fees concluded by their members (ie, banks and credit institutions).

Following this request, on July 30 1999 the three payment system associations submitted a joint application for individual exemption to the Service for the Defence of Competition. The application concerned an agreement setting out a maximum annual interchange rate to be charged for debit and credit card transactions in Spain between 1999 and 2002. The court granted an exemption on April 2000.

In addition, the associations filed separate notifications concerning their respective agreements on interchange fees for internal transactions.

The intra-system fee schemes established in the three agreements were similar. The key elements of these schemes were as follows:

  • There was a single interchange fee scheme for both credit and debit cards;

  • The amount of the fees depended on a pre-determined classification of merchants by economic sector. The classification was established on the basis of each sector's average turnover calculated on an annual basis; and

  • The governing bodies of each payment system association could lay down exceptions for specific sectors or retailers.

Euro 6000 filed its notification in September 2000 and obtained an individual exemption on July 9 2001 for a five-year period (ie, until July 9 2006). Sistema 4B and Servired filed their notifications in January and April 2002 respectively. They began to implement their intra-system fee schemes three months after filing, in conformity with Article 4(4) of the Law for the Defence of Competition - which allows provisional implementation of agreements notified to the competition authorities if, three months after filing, the court has not issued a decision.


The conclusion reached by the court was identical in the three cases: the interchange fee schemes were neither objective nor transparent. In particular, the court considered that the application of different fees for different economic sectors and the possibility to make exceptions to the general criteria were discriminatory. Indeed, the amount of the fee was ultimately dependent on the negotiating power of the commercial sectors or particular retailers. Therefore, the court dismissed Sistema 4B's and Servired's applications for exemption. With regard to Euro 6000's interchange system - which had already obtained an individual exemption - the court ordered the Service for the Defence of Competition to conduct proceedings to amend or remove the exemption granted.

The reasoning underlying the decisions was based on the following elements:

  • Agreements establishing a common interchange fee for transactions within each payment system are restrictive of competition, since they limit the participants' freedom to conduct bilateral negotiations and agree on the amount of interchange fees.

  • Nonetheless, these agreements have beneficial effects for customers and merchants (ie, the system is more efficient as it avoids multiple bilateral agreements). Therefore, the court may grant individual exemptions as long as interchange fees are determined pursuant to objective and transparent criteria.

  • Thus, payment systems are free to submit new applications for exemption. However, such applications will be subject to the requirement that the amount of intra-system interchange fees - which shall be different for debit and credit cards - does not exceed the sum of the effective costs arising from the following factors: (i) the authorization and processing of transactions clearing, which shall be determined as a fixed amount per transaction; and (ii) the risk of fraudulent use of the cards, which shall be determined as a percentage of the transaction amount, due to the variable nature of that risk. This factor might be considered only as part of the costs to be included on interchange fees in credit cards transactions.

  • Other costs (eg, system management costs, costs associated with account services for the cardholder, costs of the free funding period or coverage for default) are excluded from interchange fees.

Thus, the court's decisions rely on the concept of cost-based interchange fees established by the European Commission in Visa International (COMP/29.373). However, they depart from the commission's decision, as certain costs accepted by the commission are expressly excluded in the cases at hand (ie, the cost of the free funding period or the cost for coverage of default risk in credit cards, which was included in the category of costs called 'payment guarantee').

The court has granted Servired and Sistema 4B a three-month term to file new applications for individual exemptions complying with the costs criteria set out in the decisions. Thus, banks may continue to apply the current interchange fees schemes until July 15 2005.

The associations may appeal the decisions within the next two months. The appeals will be heard by the Audiencia Nacional, which is the competent Spanish court to review decisions issued by the competition authorities.


In the short term, the decisions will have a significant impact on the structure of the card payment systems market. Banks will have to amend their collective agreements on intra-system interchange rates in order to adapt them to the criteria laid down by the court.

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