Visa Europe, defending its credit- and debit-card fees in as many as 15 regulatory probes, said banning transaction charges would harm consumers and destroy a European Union overhaul of payment systems.
The European arm of the world's largest credit-card company must resolve legal questions this year about the fees known as interchange, CEO Peter Ayliffe said to journalists in Brussels today. Without those charges, which are paid between banks in a transaction, it would become too costly to offer cards to most consumers, he said. Visa Europe is seeking to sway EU antitrust regulators who will report on a probe of the payment-card industry January 31.
The European Commission forced Visa to revise how it sets the fees in 2002 - in a settlement that expires this year – and questioned the need for the inter-bank fees in an interim finding last April. „You cannot run a payment system without some level of interchange,” Ayliffe said. „We need to agree this once and for all. And we need to ensure that it is set at a competitive level so that the systems can operate efficiently.” When a consumer pays with plastic, the retailer's bank pays the interchange fee to the consumer's bank, for the cost of having brought the customer into the system. Visa doesn't collect the fee though it sets guidelines on what banks should charge each other, unless they agree otherwise.
Ayliffe said the system spurs banks to compete with each other to sign up merchants and issue cards. The 2002 agreement called on Visa to reduce the fees. Smaller rival MasterCard Inc. is now the subject of a commission complaint on interchange. „Some sort of cost is always going to be around for card acceptance,” Joseph Dickerson, a banking company analyst at Atlantic Equities LLP in London, said in a telephone interview. „Theoretically, I suppose it could be done without some sort of interchange, but that would require a massive restructuring of the banking system, and I don't see that happening.” Interchange accounts for 19% to 20% of card revenue at some banks in the US, where the fees are higher, according to Dickerson. „It's a very big deal for their member banks,” he said, though he didn't have an estimate on the impact of losing that revenue at European lenders.
The stakes in an EU antitrust case are high, with the prospect of monetary penalties for wrongdoers. Competition Commissioner Neelie Kroes vowed last year to fine card companies unless they changed their business practices. „The commission can't comment on the results of the sector inquiry before they're finalized and adopted,” commission spokesman Jonathan Todd said in response to Visa Europe today. Visa meanwhile has been the subject of fines or probes by regulators in countries including Poland and the UK, among 14 European countries that have raised complaints or queries, Ayliffe said today. „What we can't have, as well, is national regulators saying one thing and the commission saying another,” Ayliffe said. „At a time when we're trying to establish a single European payments area, we believe it's nonsense to then not operate a regulatory regime across Europe as a whole.” An industry-led project to unify payment networks across Europe is due to begin next year, and to replace national systems by 2010. As part of the project, Visa is spending €168 million ($217 million) to insert computer chips and encode all its cards with personal numbers, to reduce fraud and make transactions more efficient.
The regulatory questions have spurred London-based Visa Europe to separate from the rest of San Francisco-based Visa International Inc. as the global card companies goes public under the name Visa Inc. Ayliffe said today that the initial public offering is on schedule, announced October 11 as coming within a year to 18 months. Visa's first-time stock sale follows the IPO of MasterCard, the second-largest card company, whose shares have almost tripled from their initial offering price of $39 on May 25. The shares fell 25 cents to $105.25 in New York January 12. Visa Europe will remain separate unless and until its 4,500 member banks change their minds, Ayliffe said today. He added Visa Europe doesn't seek to earn a profit for itself. (Bloomberg)