European Union regulators will threaten banks and credit card companies with potential fines for blocking competition, according to a draft of a report to be delivered this week.
The European Commission, the EU's antitrust regulator in Brussels, may probe banks and payment card providers for colluding on prices and using practices aimed at keeping competitors out of their markets, the regulator said in a draft summary obtained by Bloomberg News. The report doesn't identify any companies. The EU agency „will not hesitate to exercise its powers of enforcement” under antitrust rules „to ensure that the competition rules are respected in retail banking,” the 10-page summary said. The commission will release the report on January 31.
Commission spokesman Jonathan Todd declined to comment. The regulator, which can fine companies as much as 10% of worldwide sales for antitrust violations, already has challenged how transaction fees are set by Visa International Inc. and MasterCard Inc., the two biggest credit-card networks. Disputes with Visa and MasterCard have centered on fees paid between banks that are known as interchange. When a consumer pays with a card, the retailer's bank pays the interchange to the consumer's bank. MasterCard and Visa don't collect the fee. Rather, they set guidelines on what banks should charge each other, unless the banks agree otherwise.
Agreements among banks on the fees may create barriers to entry for competitors in the UK, Spain, Belgium, Austria and Portugal, the commission draft said. „Enforcement action might also be appropriate in relation to high interchange fees and merchant fees in some payment card networks,” the regulator said. Fees vary between countries, a sign of limited cross-border competition, according to the report. The commission also said issuing credit cards would still be profitable for banks even without interchange in 20 of the EU's 27 nations.
Cutting credit card fees would be felt most sharply in the UK, whose biggest issuers are Barclays Plc and Royal Bank of Scotland Group Plc. „Banks will look to generate revenue from sources other than transactional income,” James Buckley, head of research at the Lafferty Group banking consultant, said in a telephone interview from London. He emphasized he hasn't seen the draft and EU action won't follow immediately from this week's report. „I don't think anything's going to happen in the near term.”
MasterCard and Visa say their systems promote competition, since banks vie with each other to attract consumers and merchants. Visa Europe CEO Peter Ayliffe said January 15 that denying banks those fees would deter business and hurt efforts to develop EU-wide payment systems. MasterCard said as much yesterday.
„The European Commission's current considerations of the payment card industry's business practices could potentially set us back to the starting point where consumers revert to using costly, inefficient cash payments instead of cards,” MasterCard said in a briefing document circulated in Europe yesterday. The commission also said cooperation between savings and cooperative banks may harm competition.
A probe of their practices may cover Germany and France, where lenders agree to stay off each other's turf, the draft said. In addition, retail banks may keep control over customers by linking different services, such as connecting current accounts with mortgages and personal loans, the report said. „Some forms of product tying by some banks may be inconsistent with competition law,” the draft said. (Bloomberg)