Introduction

The case of Dune Group Ltd & Ors v Visa Europe Ltd & Ors ([2022] EWCA Civ 1278) brings to the forefront critical issues surrounding competition law as it pertains to multilateral interchange fees (MIFs) within payment card schemes. This comprehensive commentary delves into the background of the case, the central legal questions addressed, and the implications of the Court of Appeal's decision on future competition law jurisprudence.

Summary of the Judgment

In this case, claimants, including traders, service companies, and local authorities, alleged that Visa and Mastercard's rules governing MIFs restricted competition, thereby infringing both EU and UK competition laws. The central contention revolved around whether the default MIFs set by Visa and Mastercard acted as non-negotiable price floors, undermining competitive dynamics in the acquiring market.

The Court of Appeal upheld the decisions of lower courts, dismissing some claims while allowing others to proceed based on defenses presented by Visa and Mastercard, particularly the impact of the Interchange Fee Regulation (IFR) introduced in December 2015. The Supreme Court previously affirmed that the default MIFs constituted a restriction of competition, but this judgment revisits and nuances that stance in light of regulatory changes.

Analysis

Precedents Cited

The judgment extensively references pivotal cases that have shaped the interpretation of competition law in relation to payment schemes:

• Sainsbury's Supermarkets Ltd v Mastercard Inc [2020] UKSC 24: Established that default MIFs set by card schemes can constitute anti-competitive agreements under Article 101(1) TFEU.
• Mastercard Inc v European Commission (Case C-382/12 P): Clarified the conditions under which certain restrictions can be deemed objectively necessary and proportionate.
• Groupement des Cartes Bancaires (CB) v European Commission (Case T-491/07): Emphasized the importance of counterfactual scenarios in assessing the competitive effects of agreements.
• Expendia Inc v Autorité de la concurrence (Case C-226/11): Highlighted that only agreements with appreciable effects on the market fall within Article 101(1) TFEU.

These precedents collectively underscore the judicial scrutiny applied to MIFs and their potential to distort competitive practices within the payment processing ecosystem.

Legal Reasoning

The core legal question centered on whether the default MIFs set by Visa and Mastercard constituted a restrictive practice under Article 101(1) TFEU. The court examined whether these MIFs effectively set a non-negotiable price floor for merchant service charges (MSC), thereby limiting competition among acquirers and imposing collective limitations on merchants.

Visa and Mastercard introduced defenses based on the IFR, arguing that regulatory caps on interchange fees altered the competitive landscape. They posited that without default MIFs, alternative counterfactual scenarios like the Unilateral Interchange Fee Model (UIFM) or bilateral negotiations would naturally result in interchange fees capped by the IFR, thereby negating the anti-competitive effects previously identified.

The Court of Appeal, aligning with precedent, acknowledged the validity of these defenses to an extent. However, it remained critical of whether the proposed counterfactuals sufficiently dismantled the competitive concerns originally raised.

Impact

This judgment has significant implications for the regulation of payment card schemes and the setting of interchange fees. It delineates the boundaries within which financial service providers must operate to remain compliant with competition laws, especially in the context of evolving regulatory frameworks like the IFR.

Future cases will likely reference this judgment when evaluating the constitutionality of fee structures within similar financial ecosystems. Moreover, it signals a potential shift towards greater reliance on regulatory caps to mitigate anti-competitive practices, diminishing the carte blanche afforded to major payment networks in setting their own fee structures.

Complex Concepts Simplified

Multilateral Interchange Fees (MIFs)

MIFs are fees set by payment card schemes like Visa and Mastercard, paid by merchants' banks (acquirers) to cardholders' banks (issuers) every time a transaction is made using a card. These fees are intended to cover the costs associated with processing the transaction.

Merchant Service Charge (MSC)

MSC is the fee that merchants pay to acquirers for processing card transactions. It typically includes components like MIFs and the acquirer's margin.

Competition Law under Article 101(1) TFEU

Article 101(1) of the Treaty on the Functioning of the European Union prohibits agreements between businesses that may prevent, restrict, or distort competition within the EU internal market. This includes practices like price fixing or setting non-negotiable fees that harm competitive dynamics.

Counterfactual Scenario

A counterfactual scenario is a hypothetical situation used to assess what the competitive landscape would look like in the absence of certain practices or regulations. In this case, it was used to determine if MIFs set a competitive restriction by comparing the actual scenario with one where MIFs are absent or differently structured.

Interchange Fee Regulation (IFR)

The IFR caps the interchange fees that can be charged on card-based payment transactions within the EU. It aims to foster competition by limiting the fees issuers can charge acquirers, thereby reducing costs for merchants and ultimately benefiting consumers.

Conclusion

The Dune Group Ltd v Visa Europe Ltd case serves as a pivotal reference point in understanding the interplay between self-regulated fee structures within payment schemes and overarching competition law frameworks. The Court of Appeal's decision reinforces the scrutiny that multilateral financial arrangements are subjected to under EU competition law, particularly in ensuring that such arrangements do not stifle competition or impose unfair cost structures on merchants.

Furthermore, the integration of regulatory measures like the IFR demonstrates a judiciary and legislative willingness to adapt to evolving market conditions and technological advancements to preserve competitive integrity. Stakeholders within the financial services sector must navigate these legal landscapes with acuity, balancing corporate strategies with compliance to avoid anti-competitive pitfalls.

Ultimately, this judgment underscores the critical need for transparent and competitive practices in financial transactions, ensuring that large-scale fee structures do not inadvertently or deliberately undermine market fairness and consumer interests.