According to the news report by MarketWatch, MasterCard Inc. announced on Tuesday that it was increasing its quarterly dividend from 24 cents per share to 33 cents per share.
The company also stated that it had been given approval by its board to initiate a share buy-back program, through which MasterCard would be able to buy back up to $6.5 billion worth of its Class A shares. This new share buy-back program would be effective only once the previous $4 billion buy-back program was completed.
However, despite the announcement of the share-buyback program and the increase in dividend payouts for this quarter, MasterCard’s shares were down by about 4% in trading, closing the day at $200.49 per share.
This drop in MasterCard’s share price could be attributed to two factors – a general market sell-off and an early-morning filing from the company that detailed European Union inter-regional interchange fees.
According to the news article by Reuters, both MasterCard as well as Visa had now offered to limit the fees that would be charged on card payments being made by tourists in an effort to stop incurring fines as well as put an end to an anti-trust investigation being carried out by the European Union on the two companies.
The European Commission has been waging a war against payments as well as credit card fees for decades now. And according to the Commission, these interchange fees result in higher prices for the users. An interchange fees is when the merchant’s bank has to pay a charge to the cardholder’s bank.
The reason why the EC has an issue with interchange fees is because while these fees make the banks a lot of money, the one who suffers the most and bears all the cost it’s the merchant. This issue has been under investigation since 1997, after the business lobby EuroCommerce filed a complaint against MasterCard and Visa.
MasterCard (and Visa) has now proposed that it will levy a 0.2% fee on payments being made in shops using non-EU debit cards, and a 0.3% fee on payments being made via non-EU credit cards.
If this is finalized then the two largest payments network operators would end up having their fees brought down to what is charged for customers who own EU debit and credit cards.
The EuroCommerce lobby, which also includes major companies such as Carrefour, Marks & Spencer, Lidl and Metro, stated that this was a step in the right direction. However, they also criticized the fact that this reduction in interchange fees was only for in-store purchases. Online transaction fees still remained unchanged.
Under the terms for online card payments, non-EU debit cards would be charged 1.15% while non-EU credit cards would be charged 1.50%. These commitments would apply for the next 5 years.
The lobby group stated that this disparity does not exist for European Union debit and credit cards. Therefore, they could not understand why the merchant had to be charged more due to a perceived risk, which would only be a concern if the card issuer had not taken appropriate fraud prevention action.
Third parties have been given a month to give feedback before the European Commission takes a decision on whether to accept the offer from MasterCard and Visa, or to demand even higher cuts in the interchange fees.
MasterCard also announced that it was expecting to incur an expense of $650 million extra for this quarter due to a large fine imposed on the payments company related to another European Union anti-trust investigation.
The EC spokesperson stated that this investigation was still ongoing and so he could not comment on it.