EU warns banks on payment cards

A preliminary study conducted by the European Union has concluded that consumers and businesses are being 'ripped off' by banks and payment card companies such as Visa and MasterCard. According to the study, banks across the EU are making gigantic profits and one of the main problems is excessive credit card charges.

Although the second part of the EU investigation is to be concluded in July, European Competition Commissioner Nellie Kroes warned that the EU will intervene to regulate the market if current prices related to payment cards are not brought down.

The main highlights of the study show that EU markets in this sector are not yet competitive.

"There are large price differentials within the single market and consumers pay 100 per cent more for MasterCard and Visa in some countries than in others. The fees for businesses even vary by up to 500 per cent across the EU 25 for Visa and up to 650 per cent for MasterCard."

Without revealing any names, the Commission said that the size of these differentials indicates that prices could be significantly reduced in some EU Member States. The study also concluded that the profitability of the card payment industry is generally high and has been sustained over time.

"Card acceptance fees are used to 'tax' sales at business outlets, as banks charge retailers a fee for every use of a payment card. This leads to inflated retail prices by up to 2.5 per cent of total consumer purchases and aggravates the effects of rigid market structures. Small and medium enterprises pay higher fees than large ones for the use of a payment card. These differences amount to more than 70 per cent and do not seem to be justified by transaction costs."

The European payment cards industry is large and provides the means for a significant part of consumer payments in Europe. A total of 23 billion card payments are made annually in the EU with an overall value of €1,350 billion.

Commissioner Kroes said that the payment cards industry in Europe remains national and some local players are preventing competition from developing.

"This pushes up payment card costs for consumers and businesses. Competition law and sector regulation must work together to create a better environment for business."

In its conclusions, the EU report said that despite the existence of internationally accepted payment cards, historic reasons and barriers to entry mean that much of the industry operates on a purely national basis with 25 separate markets in the EU.

"A more integrated and competitive payment card industry could create significant efficiencies for businesses, boost competitiveness and innovation and raise consumer welfare by delivering better services at lower prices. Making all forms of cross-border payments, including payment cards, as easy and affordable as domestic payments could save the EU economy between €50 billion and €100 billion per year."

Ms Kroes said that industry, consumers and other interested parties have until June 21 to submit their views and comments on the preliminary findings of this study. She said that if the preliminary findings on payment cards are borne out by this consultation, the Commission will consider action under EC treaty antitrust rules in individual cases.

"In addition, the results of the sector inquiry will feed into the Commission's analysis of whether amendments to the regulatory framework for payment cards are necessary. The Commission will publish a report on the second part of its retail banking inquiry in July, focusing on current accounts and financing of small firms."