October 3, 2022
Chicago 12, Melborne City, USA

Payback on the cards? | Business Travel News Europe


Businesses regularly purchase corporate travel through commercial cards, such as plastic corporate cards that they give to their travelers, or centralized payment tools such as lodges and virtual cards. Law firm Harkas Parker is bringing a class action lawsuit against MasterCard and Visa in the UK. It alleges that the multilateral exchange fees imposed on airlines, hotels, travel management companies and other merchants that accept Visa and MasterCard commercial card payments are too high and set against competition.

Harkas Parker invites all travel and hospitality organizations to join Class Action, working with Steve Allen, a former senior TMC executive who is a director of companies created specifically to serve as a representative of the proposed class. Harkas Parker says that if successful, “there will be claims worth millions of pounds or more among the big contenders.”

The Advantage Travel Partnership, whose members include many UK-based TMCs, has pledged support for the case.

But what is the basis of the claim, why are these being done now and will the victory be in the interest of travel buyers? The answer to that last question can go a long way in deciding whether the legal action will ultimately succeed.

What is an exchange fee?
Merchant service charges up to 90 percent of merchants for accepting a card transaction consist of an interchange fee – a fee that the merchant’s bank (the acquirer) must pay to the cardholder’s card issuer (issuer).

In 2015, an EU regulation, still applicable in the UK, limited the exchange fee on consumer card transactions to 0.3 per cent for credit cards and 0.2 per cent for debit cards. Commercial cards and inter-regional payments (a cardholder using a card outside their country – part of the same legal action) were not included in the regulations.

According to Harkas Parker, the average exchange fee for a Visa or MasterCard commercial card is 1.56 percent.

What is the case against Visa and MasterCard?

Harkas Parker claims that the exchange fees are “anti-competitive and illegal” because they are set by Visa and MasterCard. “Illegal bit about all this because there is no shopping around [interchange fee] It’s not set by competition, “said Harkas Parker partner Jeremy Robinson.

“This is set by MasterCard or Visa and is imposed on the bank as a condition for joining their MasterCard or Visa schemes. It sets a high price floor that is imposed on businesses only for the right to receive payments via card. Our initial case is that the exact level of interchange fee is zero. “

Competition law requires two questions to be answered. The first is whether the competition has limitations or distortions. Recent investigations and legal actions in both the EU and the UK (most notably a case won by Censberry in the Supreme Court against MasterCard) have created a strong case that the answer is yes, of course in the case of consumer cards, and now a similar test to a commercial card exchange fee competition.

Can the same competition be sued about commercial cards?
The second competition law question, Robinson says, is any restriction on competition “otherwise, broadly speaking, justified by a series of consumer-friendly benefits? Otherwise it is illegal.”

The Competition Appeals Tribunal, the UK’s leading judicial body that will consider the case, may decide that the commercial card exchange fee may be lower at a lower level, in which case we have not succeeded in our initial case but have succeeded. Robinson said the interchange fee should be lower than that.

This is why Visa and MasterCard may prove that the success or failure of this measure depends on whether the card issuer’s commercial customers, and the merchants themselves, the benefits they receive from the commercial cards require an exchange fee for the fund.

Will the corporate travel sector change if the class action is successful?
Yes, in the eyes of Patrick Deimer, Arthur D. Little’s senior adviser and former managing director of AirPlus International and a former Visa executive. Several corporate travel companies, he said, have built their business models partly on commercial card exchanges, such as corporate card issuers, cost management companies and online booking tools. All of this will make corporate travel more expensive for buyers if the exchange is down-regulated.

“Corporate travel buyers buy most of their travels with commercial credit cards. Booking engines pay their hotels and other providers via commercial credit cards. TMCs pay their suppliers and much more. [Usually] Cardholders pay nothing for the service and most of them get a kick-back on the volume they bring. This can be up to half or two-thirds of the exchange.

“If business card interchange fees fall to the level of consumer credit cards, either through regulatory intervention or through class action suits, the impact of these travel business models will be revolutionary,” Deimer said.

Robinson disagrees. “It has been argued at length in the supermarket case and it has not been found that the issuers need an exchange fee above zero to run the scheme,” he said. “It’s just a part of a bank’s business.”

Cardholders often have to pay merchants a surcharge to use commercial cards to offset the high exchange fees for those cards. If the class action is successful and the merchants are compensated by Visa and MasterCard, will the merchants refund the surcharge revenue to the cardholders?
Legally, there is no need for merchants to share with surcharged customers as they can get any compensation. However, Robinson said, “I have no problem [corporate clients] There is a knock on the door and that commercial discussion is taking place. It’s part of the rough and tumble of business. If so, it will force the industry to rearrange itself on a more efficient basis. If the travel industry has some extra margins to share with their customers, everyone is happy, but that’s not the legal case we’re bringing. “

Isn’t there a paradox that Class Action is known as a four-party provider (Visa and MasterCard) while the overall fee charged by three-party card providers (such as American Express, Diners Club and UATP). Usually higher?
According to Robinson, tripartite providers, since money flows are structured differently, cannot be considered anti-competitive. Or can not be called into their account to charge high fees because they do not abuse the influential position.

Robinson said that if the class action is successful and Visa / MasterCard reduces their fees, the third party providers will have to reduce their fees or the merchants will refuse to accept them. But the counter-argument (which the four-party issuers used when persuading the EU to remove commercial cards from its 2015 regulations – although the EU has never officially explained why it excluded commercial cards) is that it will leave the third-party provider free to sign. Commercial customers with extensive discounts that four-party providers cannot match.

What do Visa and MasterCard say?
From the answer to the detailed question BTN EuropeMastercard issued the statement: “We strongly believe that businesses of all sizes derive real value from the acceptance of cards issued on our network and we are committed to helping our retail partners grow their business and encourage more convenient, secure cards. And the safe way to pay and pay. ”

A statement issued by Visa was similarly unsubstantiated: “Visa facilitates and protects millions of transactions every day. Our continued investment in the resilience and accessibility of our innovative network enables us to confidently buy and sell millions of businesses across the UK. We ensure that businesses will benefit from convenient, reliable and secure digital payments, helping to make trade more inclusive and accessible to all. “

How long can it take?
According to Harkas Parker, a trial could be “a few years away” if no settlement is reached.


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