Profits for European card issuers are under fire by the European Union's Competition Commission as E.U. antitrust regulators look into competition problems within the financial industry.
Competition Commissioner Neelie Kroes reported at a recent European financial services conference that card issuers have overcharged customers as a result of insufficient competition, according to industry publication CardLine Europe. She said there wasn't evidence that high profits were a result of innovation and risk-taking, and she said the high fees were like a tax on consumers.
This all follows the release of a report issued at the behest of the commission to assess competition in the payment card industry in Europe. The report pointed out price differences in fees across Europe as well as the difficulty of market entry. It estimated savings of between E50 billion and E100 billion if the payment card industry was more competitive.
"These problems are not only penalizing business and consumers, but also damaging Europe's competitiveness," Kroes said in a speech after the preliminary results. "In general, banks charge up to 2.5 percent on every retail purchase with a payment card, the equivalent of a tax on consumption. Moreover, fees paid by small firms, such as retailers, for accepting payment cards in one country can be up to six times more expensive than another country."
Visa Europe in response said that "competition has ensured that the costs to all the parties are balanced in a way that has allowed the system to flourish, providing the world's 1.3 billion Visa cardholders with acceptance at over 24 million merchants."
Antitrust regulators are expected to issue a final report on the matter by the end of 2006 that will look at ways to remedy the problem with regulators and the industry, according to the commission.
Regulations within a country or region's credit card industry already have affected an area's travel industry
(BTN, May 15). The Reserve Bank of Australia regulated the fees that issuers charge to merchants and allowed merchants to add surcharges for credit card purchases. Since then, Qantas Airways imposed a 1 percent surcharge on credit card bookings.
The European card market already is in a state of flux as the Single Euro Payments Area comes into being. SEPA would treat several European countries as a single domestic market, rather than leaving the countries as independent markets, and it's expected to happen sometime between 2008 or 2010. The formation would relieve some of the discrepancy problems related to credit cards across European counties. However, Edgar, Dunn & Co. director of financial services Pascal Burg, speaking at the Association of Corporate Travel Executives' conference in May, said the banks could lose as much as E29 billion in payment-related revenues, and that could be a reason to raise card fees.
The card industry is preparing for the changeover. At the end of May, Visa's Europe Board declared that its products would be in compliance with the SEPA framework by year-end. During the rest of the year, Visa will adopt a single pricing structure for transactions within SEPA and will participate in the relevant standardization activities.