EU Competition Concerns About Payment Cards Industry

The report, based on responses from many market participants, reveals several potential barriers to entry into payment card markets, such as technical obstacles and practices by banks and networks that may raise costs for entrants.

The industry, consumers and other interested parties have ten weeks (until 21 June) to submit their views and comments on the preliminary findings. If the preliminary findings on payment cards are borne out by this consultation, the Commission will consider action under EC Treaty antitrust rules in individual cases.

In addition, the results of the sector inquiry will feed into the Commission’s analysis of whether amendments to the regulatory framework for payment cards are necessary.

Competition Commissioner Neelie Kroes said: “The payment cards industry in Europe remains national and some local players are preventing competition from developing. This pushes up payment card costs for consumers and businesses. Competition law and sector regulation must work together to create a better environment for business.”

The European payment cards industry is large and provides the means for a significant part of consumer payments in Europe. A total of 23 billion card payments are made annually in the EU with an overall value of € 1,350 billion.

Despite the existence of internationally accepted payment cards, historic reasons and barriers to entry mean that much of the industry operates on a purely national basis with 25 separate markets in the EU. A more integrated and competitive payment card industry could create significant efficiencies for businesses, boost competitiveness and innovation and raise consumer welfare by delivering better services at lower prices. Making all forms of cross-border payments (including payment cards) as easy and affordable as domestic payments could save the EU economy between €50 and €100billion per year.

Indications that markets are not yet competitive:

• Large price differentials within the Single Market. Consumers pay 100% more for MasterCard and Visa in some countries than in others. The fees for businesses even vary by up to 500% across the EU 25 for Visa and up to 650% for MasterCard. The size of these differentials indicates that prices could be significantly reduced in some EU Member States.
• The profitability of the card payment industry is generally high and has been sustained over time.
• Card acceptance fees are used to “tax” sales at business outlets, as banks charge retailers a fee for every use of a payment card. This leads to inflated retail prices by up to 2.5% of total consumer purchases and aggravates the effects of rigid market structures.
• Small and medium enterprises pay higher fees than large ones for the use of a payment card. These differences amount to more than 70% and do not seem to be justified by transaction costs.

Potential barriers to competition found. Examples are:

Structural barriers

• Vertical integration of many national payment card systems can impede new entrants at different levels of a payment card system’s value chain. In particular non-banks (processors) can be prevented from competing with the incumbent banks.
• Banks deal jointly with retailers instead of competing, giving retailers just one offer for the network concerned. Such joint marketing ventures exist in eight EU Member States.

Technical barriers

• Divergent technical standards across the EU prevent many service providers from operating efficiently on a pan-European scale.
• The lack of multilateral clearing houses in some markets may make entry more expensive.

Behavioural barriers

• Agreements among local banks may raise costs for new entrants in some instances.
• Some payment systems exclude non-banks from the cards business and sometimes charge high joining fees to new entrants.
• Governance arrangements within payment systems may also risk distorting competition between member banks.

The Commission’s goal of establishing a Single Market in payments and a Single Euro Payments Area (SEPA) are both important if European businesses and consumers are to benefit from these efficiencies. The findings of the sector inquiry will contribute to achieving these two objectives.