Interchange fees restrict competition: Is the UK Supreme Court giving Article 101(1) TFEU a final glance?

In a long running legal battle, some clarity has finally been provided by the Supreme Court of the United Kingdom in relation to the implications of multi-lateral interchange fees (MIFs) between card companies with respect to European Competition Law. In the combined cases of Sainsbury’s Supermarkets Ltd (Respondent) v Visa Europe Services LLC and others (Appellants) Sainsbury’s Supermarkets Ltd and others (Respondents) v Mastercard Incorporated and others (Appellants) [2020] UKSC 24 the Supreme Court found unequivocally in favour of the supermarket chains and held that the MIFs were a restriction of competition contrary to Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). The appellate judgment represents a series of firsts not just for the UK Court but also for the MIF legal debate generally. It is the first UK appellate consideration of the binding effects of Article 101 CJEU jurisprudence and the first ruling by any European Court that Visa’s multilateral interchange fee is a restriction of competition. The irony that such a landmark  decision on issues of European Competition Law was delivered by the UK as it enters into the final six months of its transition period before exiting the Union, is not lost. However all irony aside, it is hoped that the judgment will end the legal debate concerning interchange fees set by Visa and Mastercard once and for all.

MIFs in operation

Visa and Mastercard, like many other payment technology companies, operate payment schemes to facilitate electronic fund transfers through their individually branded debit and credit cards. In order to understand this payment scheme, it is important to clarify that whenever a cardholder uses a payment card to make a purchase from a merchant, this electronic transaction is not just limited to two parties. Instead companies such as Visa and Mastercard, who operate a multi-lateral interchange fees payment scheme (MIFs), contract issuers and acquirers (usually banks and other financial institutions) to complete the electronic transaction subject to certain default rules and fee percentages. Therefore, the electronic fund transfer is four sided; the transaction between the cardholder and the issuer on the one hand and the transaction between the merchant and the acquirer on the receiving end. The issuer will complete the payment to the acquirer less a certain fee, the merchant service charge (MSC).

The operation of MIFs is unusual as it represents a two-sided market: First, there is the issuing market where issuers compete with each other for the business of customers to whom they will issue cards. Secondly, there is the acquiring market, where acquirers compete with each other for the business of merchants to whom they seek to offer acquiring services. While the legal rules have since changed (see the 2015 Intercharge Fee European Regulation discussed below), previously issuers and acquirers were not required by law or regulation to operate on the basis of any capped MIFs. There was a lack of transparency regarding the level of intercharge fees being set and how they these fees were being negotiated. The common practice was that parties operated per fallback rules, which were set by the platform (the payment technology companies) themselves. The reason why little to no negotiation took place between the issuers and acquirers regarding the MIF is effectively because it represented equal bargaining power between the parties and an appropriate division of the costs. However, on the acquiring market, as all acquirers are in the same position, merchants had no ability to negotiate with them as to the MIF element of the MSC, which was passed on in full and to be paid by the merchant. In fact the Supreme Court noted that during the claimed period in this case, the MIF typically accounted for some 90% of the MSC.  While the system was ostensibly unfair on merchants and consumers, it took many years before domestic and European authorities started to take a closer look.

A Long Road

For those who are unfamiliar with this particular long standing legal battle, the investigation into the legality of  interchange fee arrangements for UK domestic point-of-sale transactions made using MasterCard/Maestro and Visa consumer payment cards began as early as May 2004. The legal history is complicated but begins with two separate investigations that were opened by the Office of Fair Trading, which were continued in 2014 by its successor the Competition and Markets Authority. Both investigations were closed in May 2015, however, some standalone proceedings concerning MIFs from earlier periods continued on to the Competition Appeal Tribunal (in particular a claim taken by Sainsburys against Mastercard, which was included and referred to below in the Supreme Court judgment).

The decision to close the investigations was heavily influenced by the 2015 Interchange Fee European Regulation and related European Commission and CJEU decisions that were rapidly developing between 2004 and 2015, in particular against Mastercard. Following an infringement decision handed down by the European Commission in December 2007, the Commission found in particular that the setting of the MIFs constituted a decision by an association of undertakings that resulted in an appreciable restriction of competition, which affected trade between EU member states, and that Mastercard had not demonstrated that the MIFs were objectively necessary for the operation of the system, or that the criteria for exemption were satisfied. In May 2012 Mastercard unsuccessfully appealed this decision to the General Court and the Court of Justice of the European Union was left with the final determination. On 11 September 2014, the Court of Justice handed down its judgment and upheld the decision made by the Commission that Mastercard’s MIFs applicable to cross-border transactions within the EEA contravened EU competition law. No such ruling or determination has ever been made against Visa, who from 2010 to 2014 offered commitments to the European Commission to reduce the level of its MIFs in order to address the European Commission’s concerns and as such no infringement proceedings ever followed. The European Law has since changed as a result of the Interchange Fee Regulation, which came into effect on 9 December 2015 and caps interchange fees at 0.2% of the transaction value for consumer debit cards. However, some legacy cases still exist at a domestic level concerning the issue of of interchange fees before the European Regulation came into effect.

 Dutifully bound?

The recent judgment in the Supreme Court represents a complicated overlap of appeals from three different sets of proceedings (para 26 of the judgment) initiated in 2012 against Visa and Mastercard; on the one hand, the award of damages made by the CAT against Mastercard as previously mentioned above, on the other, two sets of Commercial Court decisions. Throughout these decisions,  Mastercard and Visa advanced similar legal arguments to that which it advanced in the CJEU jurisprudence. This included, the ancillary restraint death spiral argument, which is that a restrictive provision will only be objectively necessary if the main operation would be impossible to carry out in the absence of the restriction. While a full overview of all the relevant legal findings is beyond the scope of this particular piece of commentary, it is worth noting the following in particular as to whether the UK Courts were bound by the Mastercard CJEU decision, which arguably provided the legal basis for many of these private actions within the UK.

The Commercial Court

In 2017, the Commercial Court dismissed both substantive claims against Visa and Mastercard where it stated that the MIFs did not amount to a restriction of competition under Article 101. In reference to the claims against Mastercard, Popplewell J. would have found that the Mastercard MIFs were a restriction on competition were it not for the death spiral argument raised by Mastercard, where the High Court agreed that the MIFs in the UK were objectively necessary for the scheme to operate. The High Court stated that it was bound by the Mastercard case only insofar as the claims related to the periods specified in that decision ie. the year 2007. However, the High Court noted (at para 82) that in relation to all other aspects of the present claims, whilst the court will have regard to, and may be assisted by, the Mastercard case, the court is not bound by it. The Court will afford the case such weight as it deserves, bearing in mind the similarities or differences in the evidence and subject matter, and recognising the expertise of the Commission.

Next in reference to the claims made against Visa, Phillips J. dealt with a submission by Sainsbury’s that he was bound by the CJEU’s decision to hold that Visa’s MIFs restricted competition within the meaning of Article 101. He rejected that submission (at para 148) on the basis that the CJEU’s decision was based on a finding of fact by the Commission that bilateral agreements would emerge in the counterfactual and noted that the CJEU did not decide in Mastercard that MIFs restricted competition as a matter of law.

The Court of Appeal

In July 2018, the Court of Appeal held that the default MIFs charged within the Visa and Mastercard payment card schemes were an unlawful restriction of competition under Article 101(1) of the TFEU. The Court held unequivocally (at para 186) that it was bound to follow the decision in Mastercard that the MIFs in issue restricted competition within the meaning of Article 101(1) and stated that this was not a decision from which the Court “either can or should depart”. On the death spiral argument, the Court of Appeal overruled this legal analysis. Instead, as noted by Hausfeld, the Court of Appeal held that the right test is to ask whether the default MIF was essential to the survival of the system itself – to which it found the answer to be clearly in the negative. This is endorsed by the fact that, even post-implementation of the 2015 Interchange Fee European Regulation, the relevant MIFs that are the subject-matter of the EU Regulation have not initiated a collapse of Mastercard and/or Visa.

The Supreme Court

Again, while there were many issues before the Supreme Court, one of the central points was whether the Court of Appeal was correct in holding that the court is bound by the Mastercard decision on the restriction issue; and if not, whether that decision ought to be followed. The appellants argued that the Court was not bound by the Mastercard decision which, they said, had a different factual basis from the present claims. The Supreme Court disagreed, concluding that the essential factual basis on which the Mastercard judgment held there to be a restriction on competition was mirrored in the appeals before it. The Supreme Court considered whether they were bound by Mastercard (at para 68-104) and stated (at para104) that even if it were not bound by the judgment, it would in any event have followed it. The Court concluded (at para 101-102) that MIFs restricted competition because retailers had no ability to negotiate down the MIF element of the MSC and the MIF had the effect of setting a minimum price floor for the MSC and because it is set by collective agreement that element of the MSC is not subject to price competition.


The Supreme Court, having found in favour of the supermarkets, has remitted the issue of compensation to the Competition Appeal Tribunal, where one expert has stated that UK merchants have paid an estimated €19 billion (US$21 billion) in interchange fees since 2013 and they will be entitled to a percentage of that amount back as settlement. While of course the facts of this case pre-date the Brexit referendum, interestingly, the approach adopted by the Supreme Court in assessing whether the Mastercard judgment was binding was dependent upon the comparison of factual findings and whether they were materially distinguishable from those the appeals. This presupposes that the Supreme Court was legally bound by the Mastercard judgment and therefore CJEU jurisprudence concerning Article 101 TFEU as a matter of national law and the Court referred to the express principles of the UK Competition Act, 1998, which state that questions arising under the Act must be dealt with a manner consistent with the treatment of corresponding questions arising under EU Law.

The UK Supreme Court judgment is yet another reminder that principles of Competition Law are deeply harmonised by the TFEU articles and that most national laws contain similar express provisions to uphold the consistent application of domestic and European Law. Even at this late stage of the transition period, it is still unclear whether the UK authorities will continue to operate their competition rules in line with principles found in CJEU jurisprudence. However, as this is the first substantial award for a competition damages claim in the UK, one legal commentator has noted that the Supreme Court decision may represent how the UK will navigate antitrust cases in a post-Brexit world, in that the binding effect of the CJEU Mastercard decision may limit the willingness of companies to defend liability in follow-on damages claims and could also embolden consumers and others affected by other competition law infringements to launch follow-on claims and class actions.