Euro payment transactions: EU regulation on charges threatens to distort competition (9 August 2001)

• The European Commission has plans for legislation that would drastically reduce charges for cross-border payment operations within the EU. According to its proposal for a regulation, charges for cross-border payment transactions up to EUR 50,000 are generally to be the same as those for corresponding domestic payments from January 1, 2002. The rule would apply to cross-border credit transfers and cheques from January 1, 2003.
• Administrative price-fixing is not necessary, though, as institutions offering payment services have already taken far-reaching steps to make cross-border payment operations more efficient in future, and thus to lower their charges for these services. Some banks have already substantially reduced their charges for electronic payment orders.
• With EU-wide bank identifier codes (BICs), international bank account numbers (IBANs) and standards for forms (IPI, MT103+), banks will very soon be able to introduce straight-through electronic processing in cross-border payments. If cross-border retail payment systems and centralised clearing and settlement structures are established this could bring further cost reductions.
• The proposed EU regulation would disturb the development of the market by hindering market-driven pricing.
• Even within a single euro-zone payment area it must be possible for customer charges to reflect the relevant settlement costs. These remain steep for cross-border operations, which is the reason why charges to customers are also still relatively high. In addition, reporting obligations via-à-vis national authorities make cross-border payments more expensive, as well as slowing them down. As soon as possible, these obligations must be reduced and restricted to payments of more than EUR 50,000.
• The regulation would force banks to execute cross-border payments at less than cost price and to compensate the resultant losses through cross-subsidisation. This could prompt smaller institutions to withdraw from the market, which would reduce competition.
• Administrative fixing of bank charges would be unlikely to withstand a judicial review by the European Court of Justice.

For in-depth analysis, see the Deutsche Bank Research:

International Euro payment transactions: EU regulation on charges threatens to distort competition.