LONDON (MarketWatch) -- The European Commission ruled Wednesday that charges MasterCard imposes on retailers are illegal, though the commission stopped short of imposing an immediate fine and gave the company six months to find a new arrangement.

The E.C., which rules on antitrust policy throughout European Union member countries, said MasterCard's MA, -0.63% "interchange fees" are illegal. Visa has an exemption that runs through the end of the year.

MasterCard charges merchants a payment -- 5 euro cents plus between 0.4% and 1.05% of the transaction value for debit cards, and between 0.8% and 1.2% for credit card payments.

The fee applies on virtually all cross-border payments in Europe, as well to domestic payments in Belgium, Ireland, Italy, the Czech Republic, Latvia, Luxembourg, Malta and Greece.

Such fees aren't inherently illegal, the commission said, but they are when they don't contribute "to technical and economic progress" and benefit consumers. The E.C. will fine MasterCard 3.5% of daily global revenue in six months if the fees aren't withdrawn. MasterCard recorded $3.3 billion of revenue last year.

MasterCard said even though it doesn't receive the interchange fees - issuers get them -- it would challenge the ruling.

"Market forces, not regulation, should drive key decisions such as the setting of interchange fees and retailers' choices over which forms of payment to accept," it said. MasterCard insisted the fees are necessary to share costs for all participants in a payment system.

"Europe wants to reduce reliance on cash in favor of electronic payments, which are safer, cheaper, more secure and more convenient for consumers and merchants alike," it said.

Retailers didn't share that view.

Retailers argue that MasterCard should charge per transaction and not take a cut of the overall sale.

"The sooner MasterCard accepts this ruling the sooner customers will benefit from these cost reductions. We are now urging the Commission to ensure card companies do not try to wriggle round the effect of the decision by pushing up other charges or introducing new ones," said Kevin Hawkins, director general of the British Retail Consortium, a trade body representing U.K. retailers.

MasterCard shares rose over $6, or 3%, in early trading.

Analysts said a similar ruling in Australia showed that card issuers, rather than credit-card firms, took a greater hit.

"In Australia, American Express was a significant beneficiary of mandated interchange reductions as its market share and profits rose significantly," said David Hochstim, a Bear Stearns analyst.