By Chris Jones - 11th April 2006
The European commission is ready to take legal action against banks and credit card companies if “outrageous” profits are not reduced, Neelie Kroes warned on Wednesday.
The EU competition chief said the industry had 10 weeks to come up with ways of lowering card payment costs or face the threat of EU sanctions.
“The more they do to bring profits from card payments down to acceptable levels, the less likely they are to face action under EU anti-trust rules,” the Dutch commissioner said.
The commission began investigating card payments within the EU last year as part of a wider probe of the banking system that will also include current accounts and insurance.
More than 23 billion card payments are made within the EU each year, worth more than €1350bn in 2004.
“Our initial investigations show that the EU card payment market is very fragmented, with 25 different national systems and very little cross-border activity,” Kroes said.
She explained that in many countries, banks and card payment companies such as Visa and MasterCard actively colluded to set nationwide charges, acting as de fact monopolies.
“There is no market pressure on prices, since there is no competition, and this is bad for the consumer, who ends up paying more.”
“Each card holder in the EU could save hundreds of euros each year if profits were brought down to normal levels.”
The commissioner said that the average fee charged for credit and debit card payments was 2.5 per cent, which amounted to “a tax on consumption”.
“Fees charged to retailers can be as much as six times higher in one country than in another. Consumer fees can be up to 12 times greater.”
Despite the threat of legal action, Kroes went to great lengths to stress that she did not want to name and shame the companies that were abusing the system.
“We are opening a 10-week consultation with the 250 banks and the 25 operators of card payment systems, and that dialogue will clearly be more constructive if no-one is pointing the finger,” she said.
But she did highlight the need for action in countries such as Italy, Spain, Portugal, Belgium and Austria, while praising Germany and the Netherlands for having the most competitive prices.
Although the commission’s final report on how to tackle high card payment charges will not be published until the end of 2006, Kroes hinted at a number of possible measures.
“We need a European card payment system that can rival Visa and MasterCard,” she said.
“Those companies are welcome in Europe, as long as they conform to European competition rules, but there is evidence that appear to be abusing the system at the moment.”
“We also need to set up common technical standards for all EU card payment systems. At the moment, each member state has its own set of standards, and in some cases they are kept secret to stop other companies from entering the market.”
But Kroes stopped short of suggesting that the commission would create its own set of standards, or set up an international payment system.
“It is up to the banking sector to come forward during the next ten weeks with innovative and interesting ideas for how to solve the problem.”
European retailers welcomed the commissioner’s comments. “The commission has rightly given priority to the interests of consumers and retailers by concluding that MasterCard and Visa have been charging unduly high fees,” said Xavier Durieu, secretary-general of industry association EuroCommerce.
A spokesman for Visa Europe declined to comment on Kroes’ comments, saying that the company had only just received the commission’s interim report.
But he said that the company “ensured that the costs to all the parties are balanced”.
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