The business practices of American credit card companies have been under strict scrutiny in the European Union for a long time. Less than a month after the busy holiday season ended, regulators took action against Mastercard (MA) this week for its controversial rules related to the collection of interchange fees, which had quite often left investors speculating about the stock’s movement.
The action comes about two weeks after Mastercard ditched its name from the iconic logo featuring interlocking circles, giving the brand a whole new look. The move was part of the company’s efforts to rebrand itself as a leading payments technology company.
The competition regulator in EU found the payment services giant guilty of artificially hiking the cost of doing transactions in Europe. According to the European Commission, Mastercard’s anti-competitive rules, which were in effect before 2015, caused inconvenience to retailers and consumers by denying them access to cheaper card payment services in the region.
The competition regulator found the payment services giant guilty of artificially hiking the cost of doing credit card transactions in Europe
By forcing partner banks to pay retailers fees applicable in the countries where they are based, rather than the country where the transaction is done, Mastercard allegedly divided the region, which has otherwise been a single market. The company seems to have tried to cash in on its extensive reach to the European market.
Since the company has withdrawn the controversial rules after the introduction of the Interchange Fee Regulation a few years ago, it need not have to review the current practices in the wake of the penalty. Meanwhile, the regulators reduced the fine by about 10% considering the cooperation extended by Mastercard’s management in the various stages of the investigation since it was launched in 2013.
Separate cases are pending against Mastercard and Visa in Europe for inappropriately charging foreign travelers who use their services there. However, the card companies are expected to escape fine in those cases, thanks to the reciprocal measures adopted by them.
Shares of Mastercard suffered in early trading Tuesday after the market reacted negatively to the EU penalty. After registering a 19% gain in the past twelve months, the stock had closed the previous session up 1.35%. Visa shares also opened Tuesday’s session lower.