Credit card companies warned by EU of antitrust action

Competition

European Competition Commissioner Neelie Kroes warned credit and debit card companies that they must make improvements or risk being penalized for anticompetitive behavior. Credit card companies should not think the commission to be inactive. Kroes stated that neither the commission nor other payment cards companies would wait to take actions, though she refused to name any of those banks. On April 12, she threatened Visa International Inc., MasterCard Inc. and banks with antitrust penalties for charging excessive fees on credit card and debit card payments, blamed for driving up prices by 2.5%. European Union regulators, in a 193-page report released July 14. This report highlighted banks’ difficulties in expanding abroad because of regulatory and structural barriers. The European Commission, the EU's antitrust authority, also threatened to crack down on banks for hindering competition in retail services such as current accounts. EU law permits the commission to fine companies as much as 10% of their annual sales for breaking antitrust rules.

On June 30, MasterCard was already accused of restricting competition between banks by setting minimum fees for retailers that accept its MasterCard and Maestro payment cards. The probe, which began in 2003, focuses on so-called interchange fees. The cost is passed on to retailers and represents the merchants' largest cost in accepting MasterCard payments. Kroes has said the 2.5% average charge on transactions in the EU is too high, likening it to a tax on purchases. She told journalists today that the best option is for credit card companies to eliminate the interchange fee. Kroes said she wants a competitive situation. But Javier Perez, president of MasterCard Europe, thinks it's a protected market, he told journalists that removing the interchange fee would cause chaos in the credit card industry. Big merchants won't pay fees, small merchants will overpay and the consumer will be overcharged, he said and Perez says that is a dangerous path.

Investigations have also focused on Visa. In 2002 the company agreed to cut the fees it charges retailers for cross-border transactions, settling an EU antitrust probe into allegations it abused its dominant position. Peter Ayliffe, chief executive of Visa Europe, warned regulators against drawing premature conclusions in its latest probe. Kroes said it was very disappointing that banks hadn't identified market barriers after the commission asked for confidential information about the retail banking market. The responses indicate that market players place more emphasis on defending and protecting their current market position than they do on seeking to expand and create new opportunities throughout Europe. Less than 8% of clients switched accounts last year. Customers aren't putting competitive pressure on banks, which, increases the risk that some banks may take advantage of them. The final results of the commission's probe are to be released by the end of the year. (Bloomberg)

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