Commission gears up against retail banking costs[fr][de] 

In its final sector inquiry report, issued on 31 January 2007, the Commission states that there are a number of competition concerns in the markets for payment cards, payment systems and retail banking products, which are reflected by large variations of payment fees.

Competition Commissioner Neelie Kroes said: "The inquiry has found widespread competition barriers which unnecessarily raise the cost of retail banking services for European firms and consumers."

The payment cards industry has an overall consumer payments value of €1,350 billion generating an estimated €25 billion in fees per year, according to the Commission. Particular areas of concern are:

• Highly concentrated markets in many member states;
• large variations in merchant fees across member states;
• large variations in interchange fees between banks across the EU;
• high and sustained profitability;
• rules and practices that weaken retailer competition, and;
• divergent technical standards across the EU.

The issue of interchange fees is the main point of discussion between the Commission and the industry. While payment networks, such as VISA and MasterCard argue that this fee is "vital" to efficient functioning of their systems, the Commission says that there is "no economic evidence" to this and "most card issuers would remain profitable with very low levels of interchange fees or even without any interchange fees at all". 

However, the Commission does not go as far as to propose a complete scrap of interchange fees, but requires them to be set "at a fair level", which it will review on a case-by-case basis. 

Kroes made it clear that the Commission will not hesitate to "make full use of its powers under competition law to tackle these barriers, in the market for payment cards and elsewhere when they result from anticompetitive behaviour".

The retail banking industry, which the Commission estimates to generate €250-275 billion gross income per year, amounting up to 2% of EU GDP, is found to be fragmented along national lines, divided by competition barriers and regulatory, legal and cultural differences. More specifically, the Commission found competition problems in the following areas:

• Conjunction of high profitability, high market concentration and entry barriers in some member states;
• credit registers may be used to exclude new entrants;
• cooperation among banks;
• product tying, and;
• obstacles to customer mobility.
  

Leo van Hove, professor at the Free University of Brussels says that interchange fees are "very controversial", but points out that if the right conditions are in place, they can help to "balance the issuers and acquirers revenue".

Nicola Jentzsch, head of the European Credit Research Institute at CEPS states: "More competition in retail banking services is only beneficial: it will lead to improved service quality, lower prices and larger savings in the EU." Jentzsch added: "The inquiry should be seen as a chance for increasing competition."

Talking to EurActiv, Steve Perry, executive vice-president of Visa Europe warned against substantial cuts in interchange fees, citing experiences in Australia and Spain, where he argues they have "led to an increase of charges and no reduction of retail prices". However, Perry added that VISA was "satisfied that the Commission recognised that interchange fees have a role to play".

MasterCard Europe President Javier Perez argues in favour of interchange fees. He said: "It is obvious that there is a cost and someone has to pay for it."  Perez further added that by putting pressure on interchange fees the Commission "has become the barrier to the creation of the Single European Payments Area (SEPA)". When asked by EurActiv  whether he would like to see interchange fees regulated at European level, he said that he would "favour anything that gives clarity".

President of the European Savings Banks Group (ESBG), Heinrich Haasis, said: "Savings and co-operative banks prevent a combination of high banking concentration and excessive profits, a situation that is rightly criticised by the European Commission. European citizens will certainly benefit from a pluralistic banking sector."

Xavier Durieu, secretary-general of European retail association EuroCommerce, said: "Today's report by Europe's competition watchdog is yet another condemnation of the tricks that Visa, MasterCard and the banks behind them play to maximise their income at the expense of Europe's shoppers. We are looking forward to the Commission tackling these issues head-on in its ongoing anti-trust actions against MasterCard and Visa."

Kevin Hawkins, director-general of the British Retail Consortium (BRC) said: "This report is a welcome indication that the Commission agrees with us that banks are abusing their position. The report sends a clear signal to member states, including the UK, that consumers and retailers have been bearing the costs of that abuse."

Jim Murray, director of European consumer organisation BEUC, said: "The facts are clear. Banks do not really compete and make excessive profits from consumers. The current abuses must stop. Consumers need more information, more transparency, combined with easy and cheap ways to switch banks. We count on the Commission to make this happen."