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MasterCard (MA)
No Joke: European Union Drops MasterCard Case
MasterCard - the second largest credit card company in the world - has a wide variety of fees that are imposed upon either merchants or customers; no surprise there. Any credit card customer knows there might be a fee if they use a non-network ATM, or overdraft their account, and businesses understand that they typically have to pay a fee when processing a customer's payment via credit card. However, the European Union was recently troubled to find out just how high a particular fee was, and had threatened MasterCard with fines if these fees were not removed. Today, everything appears to have been resolved; but why are some of the involved parties still thinking that the decision is as humorless as a cruel April Fool's Day joke?
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The fees in question were being charged when transactions were occurring across country borders and also for some European domestic transactions as well. These fees were required to be paid by the business, and could be as high as 1.9% if someone was using a credit card, or 0.75% if someone was using a debit card. These fees have been estimated to cost European retailers 12 billion Euros per year (almost 16 billion U.S. dollars). The European Union had asked MasterCard to stop charging these fees, saying they were unnecessary.
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MasterCard announced that they will not be removing these fees completely, but instead dropping them to a much lower level. These fees for credit cards will be capped at 0.3%, and 0.2% for debit cards. The European Union, feeling this is a reasonable comprise, has agreed to drop the case against MasterCard. However, the story doesn't end there. MasterCard has declared that this drop is only temporary; the company feels that the fees must be at a higher level in order to maintain industry competition. MasterCard will use the lower fees until they are able to bring their appeal to the European Union, still hoping to convince the EU that these fees shouldn't be prohibited.
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As for the responses to this decision, the European Union would be pretty happy if MasterCard kept the fines this low, although they can't be thrilled that MasterCard seems to want to try hard to allow them to be raised again. As for the European businesses, however, they are furious. They had hoped that these fees would be removed completely; although the fees are much lower, they will still add up over time, and retailers find them completely unwarranted. On the other hand, customers should be happy about MasterCard's decision, because in many cases retailers will increase the price of goods to make up the cost of these fees, so a reduction in fees should hopefully be reflected in the cost of goods.
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Since MasterCard isn't meaning for this change to be permanent, we can expect to see even more changes in reaction depending upon the final outcome of this situation. Furthermore, the European Union is investigating Visa (V: Charts, News, Offers) as well, as their similar fees are in the 0.7% range. The decisions made by these two companies and the European Union will likely be very intertwined and dependent upon the other. Unfortunately, unless a compromise is reached in the middle (such as these temporary fees becoming permanent), a decision on either extreme will cause some parties to be thrilled, and others to be angry. Even on April Fool's Day, the long road ahead is no laughing matter.
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