The Australian Competition and Consumer Commission (ACCC) has taken Mastercard to the Federal Court over allegedly engaging in anti-competitive behaviour.

Mastercard and Least Cost Routing

In 2017 the Reserve Bank of Australia (RBA) introduced a new initiative, least cost routing, which aimed to increase competition in the supply of debit card acceptance services and reduce payment costs for businesses. The process allowed businesses to choose the lowest cost network to process their transactions. Rather than being tied to a provider, businesses could choose whether their debit transactions were processed by Visa, Mastercard or eftpos (with eftpos often being the cheapest option).

Following the introduction of the service, the ACCC alleges Mastercard struck up deals with major retailers and fast food outlets to ensure they used Mastercard to exclusively process their transactions.

The ACCC alleges by engaging in this behaviour, Mastercard has purposely lessened competition in the supply of debit card acceptance services.

Making a deal with retailers

Mastercard debit cards and credit cards are accepted by a significant number of merchants across Australia. Almost all Mastercard debit cards are ‘dual-network’ debit cards. This means that they can be processed using either the Mastercard or eftpos debit card network. Mastercard credit cards are also a ‘must take’ form of payment for many Australian merchants.

When a consumer uses a debit or credit card to pay for goods or services, the merchant incurs fees as a result of accepting the payment. This fee will partly depend on what is called the ‘interchange rate’ that is set by a card scheme.

For dual-network debit card payments, the fees paid by a merchant can vary depending on the debit card network used for processing the transaction.

The Mastercard investigation

The ACCC alleges Mastercard’s retailer agreements gave a selection of major retailers and fast food suppliers a discounted interchange rate for Mastercard credit card transactions, provided they committed to processing all or most of their Mastercard-eftpos debit card transactions through Mastercard rather than the eftpos network.

This meant that these businesses would not process significant debit card volumes through the eftpos network, even though eftpos was often the lowest cost provider.

“We allege that Mastercard had substantial power in the market for the supply of credit card acceptance services, and that a substantial purpose of Mastercard’s conduct was to hinder the competitive process by deterring businesses from using eftpos for processing debit transactions,” ACCC Chair Gina Cass-Gottlieb said.

“We are concerned that Mastercard’s alleged conduct meant that businesses did not receive the full benefit of the increased competition that was intended to flow from the least cost routing initiative.”

Why least cost routing is great for customers and businesses

Reducing costs for businesses enables them to offer their customers better prices.

“Making sure the major card schemes, Mastercard, Visa and eftpos, compete vigorously is important for both those businesses and their customers,” Cass-Gottlieb said.

“Promoting competition and investigating allegations of anti-competitive conduct in the financial services sector, with a focus on payment systems, is a priority for the ACCC. Financial service providers should be on notice that we will not hesitate to take action in response to concerns raised about anti-competitive conduct in this important sector of Australia’s economy.”

“This case also demonstrates the ACCC’s heightened interest in addressing competitive harm caused by exclusive arrangements engaged in by firms with market power,” Ms Cass-Gottlieb said.

In March 2021, the ACCC accepted a court-enforceable undertaking from Visa in relation to concerns that Visa may have limited competition in relation to debit card acceptance through its dealings with large merchants.

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