EU Blasts Overcharging by Banks, Credit Card Firms

EU Competition Commissioner Neelie Kroes, launching a new consultation into the multi-billion euro sector, warned that she could take legal action if her concerns were not allayed.

"Let me be clear, European competition law provides a series of powerful tools to bring about more competition," she told a news conference. "The banks are making too much profit and we will face them."

The commissioner said that the European credit card industry in Europe remained dominated by local players, preventing competition from new entrants.

A preliminary report by the European Commission also found that consumers in some countries pay as much as twice the amount of credit card fees compared to other countries. For businesses the differences were even bigger, varying up to 500 percent across the EU for Visa cards and up to 650 percent for Mastercard.

"I'm fed up when parties in the market are not behaving as they should," Kroes said, adding that companies such as Mastercard and Visa "appear to be abusing the situation at present."

In all some 23 billion payments are made in the 25-nation EU annually, with a total value of 1.35 trillion euros, said the Commission.

Barriers for new players

The new report, based on a probe launched last June, found "several potential barriers to entry into payment card markets, such as technical obstacles and practices by banks and networks that may raise costs for entrants," it said.

In a new consultation, the EU commission has given consumers' groups and businesses 10 weeks to present their observations on the outcome of the report. If not satisfied, the EU could then take further disciplinary measures. But it underlined that, based on evidence so far, the signs are not good.

"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," it said.

"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."

Visa, in responding to the report, said in a statement that differences in fees across the EU depend on a variety of factors, such as levels of market maturity, market size and the nature of different products in different countries.

Both Visa and Mastercard have already come up against the European Commission because of their fees, which the European anti-trust authority has said break competition rules.

European system?

Kroes said that ultimately she would like to see the emergence of truly European competitors to the two big US credit card groups which currently dominate the market.

"The European payment card system should compete with Visa and MasterCard, we badly need a European card system," she said.

The idea is that national credit card networks, such as Banksys in Belgium, Carte Bleu in France and EC Cash in Germany would form a community through a standardized technology.

The banking inquiry is part of the EU's drive to open up cross-border markets, increase competition and liberalize various sectors of the economy.