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On Tuesday, the European Union Commission (EUC) disclosed that card giant – MasterCard Inc. (MA - Analyst Report) is being investigated for charging excess processing or interchange fees to the cardholders traveling into the European Union (EU).

Accordingly, EUC is suspicious of MasterCard violating competitive rules in the market by charging higher cross-border and interchange fees on transactions than otherwise charged to European cardholders. Even the premium cards are under the purview of the scrutiny.

Such higher interchange fee that has been varying from 0.2% to 1.6%, across 27 nations of the EU, has been hampering the shoppers’ experience in the region. Further, the issue highlights the upswing in non-cash payments, raising anti-trust concerns over faulty business practices with regard to merchant-transactions, overall thwarting healthy eCommerce and cross-border operations. 

An adverse outcome of the enquiry held by EUC could impel MasterCard to shell out about $740 million or about 10% of its earnings in 2012 as penalty for the proved damages.

Nonetheless, this is not the first time that MasterCard has been caught in the act by the European regulators. In 2007, the company was compelled to limit its debit and credit card fee to a maximum of 0.2% and 0.3%, respectively.  In the same year, archrival Visa Inc. (V - Analyst Report) was completely barred from charging cross-border fees in Europe based on anti-trust issues.

Additionally, Visa Europe is also facing a similar probe as MasterCard. Hence, MasterCard is not the first card giant to be found playing foul by the EUC.

Meanwhile, both card companies are about to face problems in the US, as retail merchants turned down the proposed multi-state US merchant lawsuit settlement of $7.25 billion, entered in Jul 2012.The rejection comes at a time when the card companies are at the final leg of receiving approval for the federal court of Brooklyn.

Faulty business principles of the card giants ultimately hit consumer purchasing powers, compromising whole market dynamics. On the flip side, it amplifies the financial damages for the companies, marring earnings and market confidence.

While MasterCard carries a Zacks Rank #4 (Sell), other strong electronic payment service providers include Visa, Fiserv Inc. (FISV - Analyst Report) and Total System Services Inc. (TSS - Analyst Report). These stocks carry a Zacks Rank #2 (Buy).

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