Direct or Lost in the Chain: Causative Link in Pass-on and CAT Merchant Interchange Fee Umbrella Proceedings

On 18 February 2026, the Competition Appeal Tribunal (‘the Tribunal’) handed down its judgment in Trial 2 of the Merchant Interchange Fee Umbrella Proceedings ([2026] CAT 11). Having established that the default multilateral interchange fee (MIF) set by Visa and Mastercard (‘Defendants’) constitutes ‘by object’ restriction of competition in Trial 1 ([2025] CAT 37), Trial 2 concerned the different forms of pass-on.

Background

In Trial 1, the CAT found that Visa and Mastercard’s default MIFs infringed Article 101(1) TFEU. MIFs are default fees paid by acquiring banks to issuing banks per transaction, with rates set by scheme operators Visa and Mastercard in the absence of bilateral agreements between acquirers and issuers. While bilateral negotiation of rates is in principle possible, as the Tribunal stated, it is ‘not a real feature of the market.’ In this payment scheme, there is also a fee paid by merchants to their acquiring bank in return for card acceptance services – the merchant service charge (‘MSC’). The MSC is negotiated between the acquirer and the merchant. The Tribunal found that default MIFs constitute a ‘by object’ restriction by establishing a non-negotiable floor for MSC.

Trial 2 was divided into two parts. Trial 2A concerned merchant pass-on (‘MPO’), whether merchants had passed the MIF overcharge to their consumers through higher prices. The defendants also argued for supplier pass-on, which was analysed in Trial 2A. Trial 2B addressed acquirer pass-on (‘APO’), whether acquiring banks had passed the MIFs on to merchants through the MSC. Trial 2 offered a clarification of the different forms of pass-on analysis, shedding light on the legal test for causation and the use of economic evidence. This post highlights key takeaways from the decision and reflects on what they may signal for future cases.

Causative Link Refined

One of the main points of contention for pass-on was the applicable legal test for causation and whether the defendants had to prove ‘a direct and proximate causative link’ between MSCs paid by the merchant claimants and prices charged to their customers. In line with previous case law, the Tribunal distinguished between factual and legal causation in the context of pass-on. The Tribunal made clear that no legal policy basis arises here, and that the issue is simply one of factual causation.

The Tribunal clarified that, while earlier case law used ‘proximity’ language in the context of factual causation, it creates unnecessary confusion (specifically, due to possible confusion with the use of ‘proximity’ in the context of legal causation) and should be avoided. Instead, the Tribunal formulated the test as ‘direct causative link’ (para 98). The test goes beyond the simple ‘but for’ test of causation, requiring also an understanding of how the overcharge was passed on. Accordingly, the Tribunal drew a distinction between direct and indirect channels of pass-on. It further explained that where an overcharge is reflected in downstream prices through budgetary processes, margin targets, or competitor price monitoring, this constitutes an indirect channel and falls short of the requisite standard. On that basis, the Tribunal then conducted a factual analysis, concluding that, for all claimants except Travix, WorldRemit, and the underwriting arm of Allianz, the defendants failed to prove, on the balance of probabilities, the ‘direct causative link’ between the MSC cost and downstream consumer prices. Some aspects of the Tribunal’s analysis merit closer attention, as they may have broader implications beyond the interchange fee context.

In its factual analysis, the defendants (and one of the experts) raised competitor pricing matching as a mechanism for pass-on, arguing that even if a merchant did not consciously adjust its prices in response to the MSC, it could indirectly do so by following competitors who reflected the overcharge in their pricing. The Tribunal rejected this in each instance (in line with its earlier approach in Sainsbury’s ([2016] CAT 11), where Sainsbury’s was found to set prices primarily by reference to competitors rather than its own costs). The Tribunal elaborated further on the rationale, holding that following competitors’ pricing is not an action taken to mitigate the merchant’s own loss, and that the merchant would have done so regardless of the MIF overcharge (para 237). The causal link is therefore not direct in such instances.

A relevant and ancillary point is how ‘directness’ applies in the context of pricing algorithms, which was discussed by the Tribunal in its analysis of the Hilton claimants. Hilton’s room prices were set by a third-party pricing algorithm, the ‘GRO system’. This was described by Hilton’s own witness as a ‘black box’ (para 126), and they were unable to provide information on the parameters taken into account. While costs can be entered into the system as inputs, the Tribunal found that the MSC was not among the inputs entered into the system. GRO operated with the purpose of maximising revenue per room and, in line with this, considers competitor pricing a variable among others. While the system can change its pricing in response to competitors’ prices (which may take the MSC into account), the Tribunal stated that this would, in any event, break the chain of causation required for pass-on. Following from the Tribunal’s analysis, it seems that where pricing is delegated to algorithmic systems (specifically if the system is a black box), the requirement to establish a ‘direct causative link’ becomes structurally harder to satisfy unless overcharge has been directly entered into a system as an input.

These findings raise broader questions about the implications of the ‘direct and causative link’ requirement for consumer claims. MPO is crucial for the claims of final consumers. Unlike merchants, MPO is not a mitigation defence for final consumers but an essential element of their cause of action, placing the burden of proof on them (para 9). Given that the standard for proof is understood to apply symmetrically whether pass-on is invoked as a shield or a sword, how ‘directness’ will operate in practice for consumer claims remains an important aspect. The current approach creates an asymmetry between consumer groups: consumers of a merchant who directly passed on the overcharge will satisfy the causation threshold, while consumers of a merchant who increased prices simply by tracking its competitors’ pricing cannot. Use of pricing algorithms adds a further layer of complexity, as the opacity of such systems makes tracing the causal chain especially difficult.

Economic theory must meet the real world

The Tribunal’s approach to the causation framework also seems to be reflected in its analysis of economic evidence. Since the MSC is too small to be measured directly in analyses, all experts relied on a larger cost proxy. A point of contention concerned the determination of an appropriate proxy. The Tribunal was clear that economic theory must be grounded in the facts of how merchants actually behave in practice (para 214). Following that, the Tribunal held that a COGS-based proxy was an inappropriate basis for establishing pass-on: although it was theoretically justified, the factual evidence showed that most claimants do not treat MSCs as COGS, and that is what carries weight.

Supplier pass-on: a non-starter

As part of Trial 2A, the Tribunal also analysed supplier pass-on, holding that it is subject to the same legal test for causation. It follows that the defendants must show a ‘direct causative link’ between the increase in MSC and the reduction in other costs (by negotiating with its suppliers). The Tribunal was clear from the outset that such pass-on would be difficult to establish, even in theory. First, it held that merchant claimants would be expected to have negotiated their supplier deals as hard as possible, regardless of the overcharge, and second, it was not plausible that a cost as small as the MSC would prompt renegotiation with suppliers (para 488). The Tribunal gave limited consideration to supplier pass-on, concluding that the defendants failed to prove it.

Acquirer pass-on: a different story

Trial 2B concerned the acquirer pass-on. As the Tribunal itself acknowledged, APO is indeed a prior question, since it determines whether fees were passed on to merchants in the first place. Unlike in MPO, the central dispute did not concern whether the MIF was passed on to merchants, given that it is typically incorporated into the MSC, but rather the extent to which such pass-on occurred.

There is more to come in Umbrella MIF Proceedings…

The proceedings will now move to Trial 3, where the Tribunal will consider whether Visa and Mastercard can rely on the exemption under Article 101(3) TFEU. Recently, the defendants have also been granted permission to appeal the Trial 1 infringement findings. While there is, therefore, more to come, the Tribunal’s findings in Trial 2 on causation are already of considerable significance. The findings are likely to have broader implications for how pass-on is framed and assessed in future cases, extending beyond the interchange fee context.