Welcome to the conference call to provide an update on the EC proposed legislation. My name is Trish, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I would now like to turn the call over to Barbara Gasper, Head of Investor Relations. Barbara, you may begin.
Thank you, Trish, and good afternoon, everyone. Thank you for joining us today on relatively short notice for a discussion about the European Commission's proposed legislation that was issued yesterday. With me on the call today are Javier Pérez, President of Mastercard Europe, and Noah Hanft, Mastercard's General Counsel. We thought a call would be the most expeditious way to get back to you regarding all of your questions, and we are able to take advantage of Javier being here in Purchase today, so it gives you a chance to hear directly from him. Following some brief comments by Javier, we will open up the call for your questions. In total, the call will last no more than 45 minutes. Finally, I need to remind everyone that today's call may include some forward-looking statements. Actual outcomes could differ materially from what is suggested by our comments today.
Information about the risk factors that could impact our business is summarized in our most recent SEC filings. With that, I will now turn the call over to Javier Pérez. Javier?
Thanks, Barbara. As you saw in our press statement yesterday, we are fully supportive of the EC's goal of encouraging a more secure, efficient, competitive, and innovative electronic payment system in Europe. However, we are concerned that some components of the proposed legislation would have the unintended effect of hindering competition and innovation and would be harmful to consumers and small merchants in Europe. Perhaps let me start by summarizing the six key components of the EC's proposed legislation as currently drafted. First, credit and debit interchange will be capped at 30 and 20 basis points, respectively for cross-border consumer transactions within the European Economic Area or EEA. These same rates would then apply to all domestic consumer transactions in the EEA two years after the regulation is approved.
It appears that these regulated interchange rates would also apply at least to American Express current GNS cards, where they provide some form of interchange to issuers. Commercial card interchange rates are not covered. The honorable card rules will be preserved except for products with different levels of interchange. This provision only relates to cards issued and used within the EEA. Third, surcharging will only be permitted on products that are not subject to regulated interchange rates. Fourth, a merchant would be able to sign up an acquirer who is established in another country, and that acquirer would pay a maximum of 30/20 basis points on consumer credit or debit transactions, respectively. In terms of co-badging, a network would not be able to restrict issuers from putting a competing brand on their credit and debit cards.
Cardholders would choose which brand to use at the point of sale, and merchants would be allowed to steer consumers towards its preferred payment brand or method. Finally, the proposal talks about some separation of brand and processing in terms of legal form, organization, and decision-making. The proposed legislation will not limit Mastercard's ability to charge networks fees to issuers and acquirers other than issuer net compensation. Restriction that will limit the amount of incentives that Mastercard provides to issuers so that they do not exceed the fees paid by issuers to Mastercard. The purpose of the net compensation restriction is to prevent circumvention of the interchange fee caps to issuers. Since Barbara tells me that separation is the topic where most of you have questions, let me spend a bit more time on this.
We believe that the separation component of the proposal is attempting to address a problem that does not exist with respect to our network. The topic of separation is not a new one. It was brought up in the EC's green paper on January, but actually goes back further than that to the SEPA Cards Framework that was issued in 2005. Mastercard already complies with that framework, which contains a requirement that brand and processing may not be bundled. Said differently, we do not impose a processing requirement for any transaction done in our cards, and we have separate pricing for brand and processing. Therefore, Mastercard customers are free to issue Mastercard cards or acquire Mastercard-branded transactions without purchasing Mastercard's processing service.
Consequently, in many instances, Mastercard does not process transactions made with one of the Mastercard brands. In fact, many of you now know that we process well below half of all POS transactions done on our cards in Europe. Our primary competition comes from domestic processors, many of whom, unlike us, operate as monopolies, and they will also be subject to this separation requirement. We are still analyzing the full legal and business implications of the separation or brand and processing provisions, but it appears that it does not require separation at the holding company level. Before we go to your questions, let me quickly review the next steps in the process. The proposed legislation now begins a lengthy process involving debate and amendments by the European Parliament and the Council of Ministers before it can be adopted. There is no fixed timeline for this process.
The proposal could be adopted before the European Parliament goes into recess in April 2014, in advance of their elections in June. There is a possibility that the adoption of legislation could be delayed until 2015. The final legislation, if approved by the European Parliament and the Council of Ministers, could be different than what's in the initial proposal. Throughout the process, we will be talking to the European Commission, as well as engaging members of Parliament and the Council of Ministers as we work to better understand and clarify the legislation, as well as identify any unintended negative consequences for the European market that could result. Because this is merely a proposal and the language in some of the provisions is not entirely clear, it is difficult for us to comment definitely today about what's meant or what it means for Mastercard business in Europe.
Let me leave you with a few initial thoughts. We are pleased that the European Commission is actually thinking about a level playing field for all parties and clearly intends to include at least part of the American Express business in Europe. The concept of separation applies to all schemes, both global, like Mastercard, and the many domestic schemes that exist in Europe today. It may well mean that this opens up more competitive opportunities for domestic processing. Although the language does not provide clarity as to what is precisely meant, we believe the focus is on ensuring switching competition, a goal we absolutely support. We're confident that regardless of the final form of the legislation, our business model will adapt as necessary. In other jurisdictions where regulation has been passed, we have been able to work through it.
I know that I don't need to remind you that Mastercard does not economically benefit from interchange. The proposal does not, as I mentioned it earlier, limit our pricing. Regardless of the new proposed legislation, we will continue to offer our clients and cardholders innovative payment products as we have always done. I guess that concludes my remarks. We are, Barbara, now Noah and I will be more than delighted to take whatever questions may be out there.
Okay. Thank you, Javier. We're now ready to begin the question and answer period. In order to get to as many people as possible in our relatively short timeframe today, we will be limiting you to a single question. Operator?
Thank you. We will now begin the question and answer session. If you have a question, please press star then one on your telephone keypad. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using a speakerphone, you may need to pick the handset up first before pressing the numbers. Once again, if you have a question, please press star then one on your telephone keypad. Our first question comes from Darrin Peller from Barclays. Please go ahead.
Thanks, guys. Javier, thank you. Just first question, you were mentioning the language around the separation of the processing and the brand scheme. Were you suggesting that your brand-related revenue could be at risk or not? Shouldn't that separation also be a material opportunity given the impact to the local networks? I think you started to allude to that. Would they also need to separate between the banks that own them and the processing entities that, I would imagine, could give you a bigger opportunity to gain share in Europe from those local players? Thanks.
Right. Let me elaborate on that a little bit.
You know that we process less than 50% of all the transactions that are initiated, if you like, by a Mastercard brand in Europe, which is proof that indeed, not only we have competition, we have a very steep competition in terms of processing, let's call it, the transactions initiated by a Mastercard product. Now, we have been progressing well. I've been keeping you updated on that and things like the Netherlands and so on. It's a clear competition in the market. Yes, we're doing well on that, but we're still far from where we should be or could be. Indeed, we do that as proven by our progression and the situation today. It's my opinion that in one way or another, not everybody in Europe who processes transactions, and I'm alluding particularly to domestic schemes, are today allowing that in a fair, transparent, competitive way.
My view is that as this proposal unfolds, my belief is that indeed what the Commission is trying to do is to generate some more competition. If that is the case, we are a player, we're well-positioned, and indeed, we will continue to compete for those transactions. If we are the best supplier, hopefully, we will get them. Indeed, I believe that it is an opportunity. Now, there is a separation between the brand revenue. As you know, we make money in different ways. One is the transaction processing, that's one thing, and this is what we are right now talking about. The other thing is the branding, right? When you put the Mastercard brand in a card, you are getting a bunch of services, and there is some fees for that. Those are separate things, and we shouldn't mix them.
The brand revenue is one thing, and the processing revenue, it's another. What this may open for us is the opportunity to continue with our brand revenue, but increase our processing services and hence our processing revenue. We do not bundle at all that today, as I was telling you. Yes, if the spirit of this legislation, if you like, potential legislation, is to increase competition, yes, I believe we are well-placed to continue to compete in that space.
Okay. Operator, next question, please.
Our next question comes from Sanjay Sakhrani from KBW. Please go ahead.
Thank you. Good afternoon.
Just a quick question. Understanding that the lower cross-border interchange rates over time haven't really impacted you from an economic standpoint, I was just wondering if your relationship with the issuers has evolved in any way since the rates have gone lower. Thanks.
As you know, we often talk about this and the answer is, we provide the fees represent a small portion of the revenue that an issuer or an acquirer gets from doing their business. So far, what I can tell you is that the compression of the interchange, which we have been experiencing for many years now, this is nothing new. I hate to admit it that I'm this old, but I remember very well when I first started in this business, the average interchange in Europe was close to 5%. I guess my point is that we still do represent, the Mastercard fees still represent a small portion of the cost, if you like, of doing business, whether you're an issuer or an acquirer.
So far, we've been able to more than compensate with incremental services, with incremental benefits to both sides, issuing and acquiring, to more than make up for whatever, let's put it this way, compression there may have been in the interchange. Pricing has always been a competitive thing. Pricing is always subject to competition. To answer your question in a perhaps simplified way, of course, we always have competition in pricing. Of course, we're always under pressure on pricing. We have been able to weather well the, let's call it, the reduction of interchange that has been happening in Europe for now really quite some time.
Sanjay, hi, it's Noah Hanft. If I could just add from a global perspective, we have now experienced regulation in other markets, decreased interchange fees in the U.S. on the debit side, in Australia as well. In all these instances, it's had no effect and no impact on our network fees. We're confident because it's already so competitive on the network fee side that there's going to be no increased pressure on our fees.
Perhaps one example even closer to heart is my native country of Spain, where actually we just experienced recently a pretty steep reduction of interchange. Again, we've been able to deal with that actually quite well.
Operator, next question, please.
Our next question comes from David Togut from Evercore. Please go ahead.
Thank you. One question for Noah, if I might.
David, could you please speak up? We can barely hear you.
Yes. Can you hear me now?
A little bit better.
Okay. Noah, can you address the question of what would be required for legal separation of Mastercard's branding business from the transaction processing business today?
Yeah. I think in terms of Javier's articulation in the beginning, he's essentially said what we know. The proposal doesn't give a lot of detail. I think all we have is what you see in there. I'm not clear what more I could add on that at this point.
I see. Just a quick follow-up, if I could, for Javier. Same question, really. To create independent organization and decision-making for both your branding business and your processing businesses, what would be required today to achieve that? To what extent do any of those conditions already apply at Mastercard?
Well, I think Noah has really answered that question. Perhaps if you want some background to that, what I can tell you is that in the past, we already had an independent company in Europe. It was called Europay, if my memory serves me right. That was actually providing processing services to the Mastercard Europe operations. It is not unusual. It's happened before. Obviously, to really answer your question in the detail you are asking, we can't. That's when I tell you, we do need to understand better what is meant or what the intention is. If you think about it a little bit as to what may be intended, right? If the intention is to generate incremental competition, I think that you don't need a very profound separation, right? The only thing you need is that if today somebody's not allowing that everybody's allowed to compete.
Come into that marketplace, take, for example, a domestic scheme, okay? Everybody can go there and say, "Hey, we now going to go and bid for this business, for this transaction business." I would assume that that's the logic behind the proposal.
Yeah. The only thing I would add is that we're pretty comfortable that the language of the proposed regulation doesn't require a change at the holding company level. That being the case, we're confident that however it comes out, and if it's ultimately approved, we'll be able to adapt our business to comply with it.
Okay, operator, next question, please.
Our next question comes from Jason Kupferberg from Jefferies. Please go ahead.
Thanks, guys. One of the aspects that you referred to is getting rid of the consumer surcharging on the cards that are covered by the interchange cap. That would seem to be an incremental positive for you guys. Can you give us an idea of how widespread surcharging has historically been across the EU in terms of which countries and/or verticals have used it the most?
Look, there are some examples, but it's not very prevalent in Europe. You know that perhaps the only thing that at this point that comes to mind is, for example, some airlines that have chosen to surcharge when purchases are done of tickets with cards. I can think of a couple of countries where taxis, when you want to pay for a taxi, you may be asked for some incremental. Other than that, I can't really think of any instance where surcharge is applied today. Nevertheless, yes, I do believe that's a positive. I believe that the standardizing the consumer experience is a good thing, I believe that some clarity around this, it is a positive.
Yeah. The only thing I would add is that we do note that the unregulated schemes, by that I mean American Express's proprietary business, at least as it appears from the language, would face surcharging. As I said, higher priced schemes would face potential surcharging, we would not.
Operator, next question, please.
Our next question comes from Craig Maurer from CLSA. Please go ahead.
Yes, hi. Thanks for taking the time today. There's some language in Article 8 that seems to indicate that a scheme can impose fees or other obligations if their brand is on a card but it is not the brand that is used to process. Does this change at all anything around your branding fees or that thought process around assessments? Thanks.
I don't know exactly which one you're referring to, but I don't think so. Go ahead.
I believe, if I'm not mistaken, that's the language that relates to assessment type fees as opposed to brand fees. Is the question about co-badging?
I think it's with Article 8, is it co-badging?
The co-badging provision actually addresses the inability, again, if it's reject issuers that wish to have multiple brands on their cards.
The case, for example, let me add to that, just some clarity around that. We've always seen and acted and feel as co-badging as an opportunity. I can tell you that I can't think of any domestic scheme that you could consider competitors to Mastercard in many ways where we don't co-badge with. We today do co-badge with pretty much all domestic schemes in Europe. We don't feel, again, that we are restrictive in any way in order to co-badge with people. The logic is very simple. If somebody can come to me with incremental volume and transactions, I have no problem with that. In fact, that's a good thing because, again, we can provide better service to our clients. We can provide better return to our shareholders.
Again, we do it today, and I don't see in there any issue with our fees from what I can read.
Operator, next question, please.
Our next question comes from Brad Voorhees from Bernstein. Please go ahead.
Yes. Hey, clearly the EC is trying to foster competition in the switching business. I kind of have a three-part question. Who are the competitors or set of competitors that could pose an incremental competitive threat? Catalyzed by these new regulations that are being proposed. Secondly, do you see any scenario of increased competition, specifically occurring in your cross-border switching business? You've talked some already about domestic, but in the cross-border area, is there any scenario of increased competition that could occur as a result of these regulations? Third, what advantages can you use to respond competitively if in fact additional competition is fostered as the EC is trying to do?
Right. First, let's talk about who are the players out there today. I don't think that this framework or this potential legislation changes the players in any way. I mean, the players will be the same. I think what we are discussing here is the opportunity that increasing that competition will present to the existing players, all of them, not just Mastercard, to go and penetrate those pockets of transactions that today have not been possible to penetrate. That's one thing. Let me now turn on to the second part of your question, which is the cross-border. Let me tell you that again, in cross-border, we do not process all our transactions. There is quite a few bilateral arrangements in Europe today in cross-border, like EAPS, for example, and many others, where cross-border transactions don't go through the Mastercard system.
Again, we don't tie, we don't bundle domestic or cross-border. Today there are many examples of both, whether it be domestic or cross-border in Europe. As far as the opportunity is concerned, well, you know how much we process, less than 50%. Inasmuch as all those transactions are put in play, we will try to go after them.
Okay, operator, before we go to the next question, Noah, I think you have one point you wanted to.
Yeah
make on this Article 8 question that Craig Maurer asked.
Yes, I started to answer that question. I think my answer was incomplete. It relates to the transactions under that Article 8, if we do not process. In that case, we're not able to impose volume-based fees, but our traditional card fees are permissible under the language of that provision. Just wanted to be clear on that point.
Okay, thanks, Noah. Operator, next question, please.
Our next question comes from Bryan Keane from Deutsche Bank. Please go ahead.
Hi, guys. Let me just ask a high-level question. Is there any risk from this regulation to your revenue stream? In particular, I understand that you're not doing all the processing, but what about potentially losing some of either the brand or processing through co-badging or some of the changes that's going to happen via cross-border? Thanks.
Frankly, I think we are exposed every day to that. As I was telling you, we don't bundle. Anybody can reach an agreement with anybody, any country, with any other country, any issuer, with any acquirer, any large retailer. The threat is there every day. I don't think that this changes anything in that perspective. I think that the market is what it is, and again, inasmuch as, again, pockets of transactions which are inaccessible today become accessible, that's an opportunity. We do compete every day. Really, this is, in a way, business as usual, if you like, from that perspective.
Yeah, as I mentioned before, we have dealt with depressed interchange. It's not something that we seek, but our business has adapted to it in every market, and there has not been a revenue impact anywhere.
Operator, next question, please.
Our next question comes from Chris Brendler from Stifel. Please go ahead.
Hi. Thanks. Good afternoon. Javier, I was wondering if this legislation in any way would impede the progress on SEPA and the progress in Mastercard gaining domestic processing share a la the Netherlands and the smaller deal you had in Italy. It seems like this creates uncertainty for issuers and banks in Europe, maybe I'm reading that wrong.
Right. Look, let me say that what we object about this really is the fact that we're loading all the cost onto the consumer, right? We don't think that's right. We think the cost of a transaction should be borne by both sides, right? They both benefit, the one selling and the one buying. What we're trying to do here is to put the burden only on the person buying, that they have to pay for everything. We don't think that's right. Now, at the same time, let me put it this way. Is that going to be a situation whereby the consumer is going to stop using the cards or the issuers are going to stop issuing? It's not a good thing, but at the end of the day, we will continue to manage.
It depends on your view onto what is the impact or is that going to change the consumer behavior? Is this going to stop electronic payments from growing and so on and so forth. We've gone through this before, and again, I think that you have the answer in the market. I think that we are well-positioned to take advantage of the situation, if you like I don't know, Noah, if you want to add something to that or.
Sure. The only thing I would add is that the notion of opening up domestic switching via the separation provision, I think, presents an opportunity for us. It is consistent with the SEPA vision. I think rather than impeding SEPA progress, that could, in this situation, actually have a potentially positive impact.
Yeah.
Okay, operator, next question, please.
Our next question comes from Julio Quinteros from Goldman Sachs. Please go ahead. Go ahead.
Hey, guys. Thanks. I had one question. I actually just wanted to follow up. I think Brad sort of asked a question, but I'm not sure we got the answer on what you guys would do from a competitive perspective. All things being equal, if interchange has kind of made the same for everybody in the space here competing in Europe, can you just maybe go back and help us get a sense for what has to change about your go-to-market strategy, assuming that you can't use interchange as a way to differentiate? What other things can you do to continue to sort of gain market share, continue to grow in the areas that you guys have been focused on? More from a strategic perspective, what would be the things that you guys could employ as far as potential mitigation strategies?
Okay. I love you for that question. What can I say? I could spend a couple of days on your question here. No, it's a great question. Joking aside, I think that Mastercard is successful in the market not because of interchange, but I would like to believe that we are providing some benefits to our clients that, frankly, are better than our competitors. You know what I always say is that you got to remember that in Europe our competitor is, one of them is Visa, no question. You got to remember that they have a different structure than Mastercard, which in my view makes it more difficult for them. They're not a global organization. Every time we invent or our clients or whatever come up with a global improvement, we can put it in place rapidly and swiftly. It's available around the world for our clients.
Our competitors cannot do that. We have an advisors organization, which is global, which can bring our European customers learnings from around the world. We have a system that is bigger and therefore more efficient because we have a global system. I'm talking about transaction processing. The list goes on forever. I understand the importance of interchange. Don't get me wrong. It's fundamental, and it's really important. I think that we win business not only because of interchange. I think there are many other things we do right, we do well, our brand and so on and so forth. I think we will continue to do well. That doesn't mean, of course, that our competition is not going to get tougher and is not going to get more aggressive and all that kind of stuff. Absolutely.
I'd like to think that we will continue to provide good value to our clients.
Okay. Thanks, Javier. Next question, please.
Our next question comes from Moshe Katri from Cowen and Company. Please go ahead.
Thanks. Can you talk a bit about the process itself? Obviously, it's going to take some time until we get to the final version of this legislation or regulation. What should we expect to next week? Are the vendors, are you guys going to be involved in terms of providing your puts and takes in terms of where this thing should go directionally?
Yes. This is Noah. I think what we anticipate is a fairly extended process. Now that the proposal's been released, it goes to the European Parliament. I think it's almost a certainty that there will be proposed amendments, and that will begin a process where we will be engaged. We'll continue to engage with the European Commission. By the way, we have great respect for the commissioner and the commission. We will continue to engage with them, as well as interact with the members of the European Parliament as well. I think in this particular situation, there's been a lot of outreach by a number of consumer groups all across Europe and small merchant organizations because of the adverse impact on consumers that Javier alluded to.
It will not be obviously just our voice, but a number of consumer groups and other organizations articulating concerns about at least some of the provisions of the proposed regulation. In any event, in order to be approved, it will have to be approved by the European Parliament by a majority as well as the Council of Ministers of the member states. It is a rather protracted process. I'm not going to speculate how long it'll take, but obviously it takes some time if anything is ultimately adopted. In the course of doing so and interacting on these issues, we will, of course, as others will, point out any of the unintended adverse consequences to consumers or others from the proposal.
Operator, next question, please.
Our next question comes from Donald Fandetti from Citigroup. Please go ahead.
Yes, Javier, I wouldn't want you to comment on specifically Visa Europe, but I was just curious, is your sense that they would have that same separation currently in place and would this change your competitive relationship with Visa Europe in any way?
I think your question was does this change the competition with Visa Europe in any way? I really don't think so. I think that the competition with Visa will continue to be the same I don't see Because the proposal puts Mastercard and Visa Europe on the same footing. It moves towards a level playing field with Amex, it potentially opens up opportunities for domestic processing, I guess, will be the summary, if I could do that. No, at this point in time, I don't see it, no.
Operator, next question.
Our next question comes from Tien-tsin Huang from J.P. Morgan. Please go ahead.
Thanks so much for hosting the call. I just want to ask, you covered a lot already. Javier, just interchange as a % of total revenue for banks in Europe, can you compare that for us to the U.S., for example? Is it lower? Meaning, do European banks rely more on consumer direct fees than maybe the banks in the U.S.? Just trying to give a sense of how important interchange is as a % of the total. Maybe as a follow-on to that, can you just give us a rough sense of your revenue exposure to credit versus debit in the region? Thanks.
It's difficult for me, Tien-tsin, to give you a detailed answer to your question. Perhaps generally speaking, you've got very large differences within Europe, for a variety of reasons. You've got countries like the Netherlands where locally they legislate it, things like interchange, for example. You've got other countries where historically the acquirers have been paying for terminals, for example, which then drives a higher cost, sometimes included in interchange. Other countries where it's different. It's very difficult to really give you a European thing. This is part of the issue, right?
This is part of the problem, which why where many member states are saying, the rates that may be applicable in, say, France, for example, may not be the same in Poland or in Sweden or in the Netherlands, simply because in the Netherlands there's bilaterals instead of interchange, and there has been some legislation, right? Perhaps staying with the general view, just to say that my sense is that the reliance of the European banks on interchange is a lot less than the U.S. banks. Put it this way. You know that the Euros have historically been providing almost as a service, the card. When you open an account, you get a debit card. That kind of has been the practice in Europe, and this is because the Europeans have also taken into consideration the fact that cards save money.
When a client of a bank goes to a branch, if they have to go through the window and do a cash transaction, boy, that takes a lot of time, takes a lot of money for the bank, and a lot of time and money for the client of the bank. They have been compounding that into their business cases, if you like. It's just difficult at this point to make a comparison for me.
On the revenue exposure? Javier.
You know, Barbara, you're not going to let me comment on that.
Good answer, Javier. Okay, Operator, next question.
Our next question comes from Gil Luria from Wedbush Securities. Please go ahead.
Yes, thanks for taking my question. I think it is clear that the EU is trying to foster competition here, and we've talked a lot about the competition that would be on the processing side and the opportunities that go with it. I would assume that they also would like there to be a competition on the scheme front, what we call brand. I think, Javier, earlier you talked about the fact that you've always had the possibility of competition and that's going to be going forward. Wouldn't things change now? These European issuers are going to look at what happened in the U.S. and realize they're going to lose a lot of revenue. What they pay you and Visa or Visa Europe is not going to go down because of the value that you add is being unchanged.
At the same time, they may end up putting Visa Europe, which means they won't own a U.S.-based scheme, but they'll also have the billions of dollars they'll get from Visa in exchange for that. From that perspective, an issuer in Europe realizing they're going to make a lot less money, their fees to you are not going to go down. They no longer own a U.S.-based scheme, and they have a few billion dollars to spend. Wouldn't they try to create a really low-cost scheme that doesn't necessarily have the bells and whistles that you and Visa provide, but will help them adapt to this very different environment?
Look, it's always a possibility. Absolutely. You've seen it before many times. A lot of what today are domestic schemes in Europe used to be pan-European, right? Think about things like what we have in Spain or Portugal or France. They used to be together and associated in some ways. That has disappeared, sort of thing, simply because the economics haven't really worked out that way. You also remember the whole story about the third scheme, for sure. You remember Monnet, just to name one. There were others. This is just one of them. That in the end it was not all that economical.
Again, and it's really down to yes, of course, there could be some extra money in the system and you could say, well, maybe that money that comes from Visa Europe could be invested into duplicating something that already exists, that it works well and is efficient and is great. It could be. I think, frankly, my own personal opinion, I think that's going to be hard.
This is Noah. We, of course, can speculate in terms of what will happen, but we do have kind of real-life examples in the market where issuers were denied interchange revenue or significant reductions in Australia and the U.S. debit. We know that the reaction has been that cardholders, consumers have paid the price. In Australia, I think it was a study showed that nearly half a billion dollars in card fees were added to Australian consumers, and free checking in the U.S., post-Durbin, was dramatically decreased, I think, 50% or thereabout. That is one kind of reaction that we see.
Operator, next question.
Our next question comes from Bob Napoli from William Blair. Please go ahead.
Thank you. The reduction historically around the globe, if you had a reduction in interchange like that, have you seen in markets that have a much higher percentage of cash, have you seen much faster adoption? I mean, are there some potential benefits here from growth of electronic payments?
It's a good question. I don't have any data on it. Obviously, we've talked about some of the downsides of the reduced interchange and the impact on consumers. There is the possibility that with lower interchange rates, that will open up merchant categories and increase the merchants. That is something that if this is adopted, we'd have to kind of watch over time.
Yeah.
Okay, operator, I think we've got time for one last question.
Okay, our last question comes from Tom McCrohan from Janney. Please go ahead.
Thanks for squeezing me in. Just a question on the merchant acquiring piece. It seems like most of the proposal has to do with kind of the whole payments and value chain surrounding activities or pricing activities that are controlled by the four-party network brands like Mastercard. Why would EC kind of folding in kind of the merchant acquiring piece on the cross-border stuff? If you can just conceptually lay that out, that'd be helpful. Thanks.
I'm sorry. I didn't get your question. I apologize.
It seemed like most of the EC proposal addresses four-party networks and the network schemes. Either the pricing interchange and how that's established or other activities controlled by four-party networks. There was this language surrounding the merchant acquirers, and I'm wondering which are not necessarily owned by networks. If you can just help me understand why the merchant acquiring piece was also kind of folded in this whole grand effort by the EC.
I think two points I'd make. First, the commission is seeking to encourage cross-border acquiring, consistent with the SEPA vision. Separately, there are provisions about unbundling and requirements on acquirers in terms of disclosing terms to merchants, and that is something that we actually have in our rules today, and we've kind of reached that understanding with the commission previously. Those would not require any change in our current construct.
Perhaps, if I could, Noah, the good thing about that, and the reason why we did that also, is because there's a lot of common practice in Europe whereby a lot of retailers today, they're getting bundle pricing. In other words, instead of interchange plus, they're getting a pricing from their acquirers for everything integrated. That conceals the fact that there are some very expensive schemes in Europe, like Amex or PayPal, which have very expensive fees, and that's not transparent to the retailer, particularly the medium and smaller-sized retailers. That clarity will bring awareness to the retail community, and they will really, truly understand that there is a very meaningful differences between schemes, the four-party schemes, to use the terminology, which are much cheaper, and other schemes which are not, and they're much more expensive. That, yes, we see that as a positive.
Of course, clarity is always good. For us, being the cheapest in Europe, this is a good thing.
Okay, Javier, I think you have just a couple closing comments for us before we sign off?
Yes, Barbara. In closing, I just want to offer really one final observation. Although there remains some open questions about both the ultimate form of any legislation and what actions we may need to take around our business model, I can assure you that Mastercard is committed to remaining competitive in the European marketplace. With that, thank you all very much for being with us and for your time today.
Thank you all for joining us. Hopefully, this call has served to answer most of your questions. If you still do have outstanding questions that we didn't touch on today, please feel free to call me or call Catherine Murchie, and we'll be happy to talk