Wednesday, April 12, 2006

Payment Cards Competition Inquiry – Preliminary Results (Europa)

(Press Release: Introductory remarks at press conferenceBrussels, 12th April 2006)


Good afternoon ladies and gentlemen. Today I am presenting the preliminary findings of the Commission’s sector inquiry into payment cards. This report is an important element of our competition sector inquiry into retail banking.

Our key finding is that businesses and consumers do not yet benefit from a fully competitive Single European Market in payment cards and as a result are paying more for the use of these cards. If the payment cards business were more competitive, every household in the EU could potentially save a considerable amount of money every year.

Payment card markets are still fragmented along national lines - I was surprised to learn that very few banks offer payment card services to cardholders and businesses outside their home country. Moreover, there are indications that some operators are preventing more competition from developing.

These problems are not only penalising businesses and consumers but also damaging Europe’s competitiveness. In general, banks charge up to 2.5% on every retail purchase with a payment card, the equivalent of a tax on consumption. Moreover, the fees paid by small firms such as retailers for accepting payment cards in one country can be up to six times more expensive than in another country.

Consumers also pay more in one part of the European Union than in another. The holder of the same international card may pay 12 times more in one country than in another country.
Our findings will question some of the conventional wisdoms of the banking industry. We have indications that banks are making large profits from payment cards. Consumers would get a better deal if there were more competition, especially competition across national borders.
What kind of change are we looking for?

First, we need more competition between banks. Only a handful of banks per EU Member State offer card related services to retailers. And in some countries these banks cooperate to become an effective monopoly provider. This must change.

Second, we must allow other service providers to enter the market and bring innovation. Some networks are still too closed to allow for more competition between banks and processors.
Third, the industry should re-think its pricing model. Banks collectively set fees that “tax” businesses, and ultimately all consumers, for every card payment. As a consequence, there is not enough market pressure on fees paid by retailers and retail prices are inflated due to card payments.

Fourth, we need to create more Europe-wide payment schemes. There must be more competition between card networks.

We need more diversity. This means that different national networks must be able to “speak” to each other, through common technical standards. Such common standards are an essential step to creating more room for competition.

How best to bring about change?

As you will see, we have been careful in our report not to portray individual countries, individual networks or certain banks as “negative examples”. We want a constructive debate and constructive proposals. We are interested in solutions to the problems.

I see three ways how to get to a competitive single market for payment cards that delivers the best value for citizens and businesses.

First, we will look at whether the Commission should pursue cases against banks and card networks under the EC Treaty’s anti-trust rules. We have identified a number of possible individual case investigations. We will decide on concrete steps once we have listened to all those who have comments – not only banks but also customers and consumers. And of course we will speak with our colleagues in the national competition authorities. We will act together where we can.
Second, I fully support Commissioner McCreevy’s initiative for a single payment area. He proposed legislation last December to remove legal barriers to competition, and our findings fully justify that proposal.

Third we need payment card systems and the European banking industry to themselves act to tackle the problems which we identified in our inquiry. Europe lacks common technical standards for card payments and national standards are even kept secret to prevent the entry of competitors. This must change. And prices paid by retailers for accepting cards should be decided by the free play of market forces – not imposed by country-wide agreements.The more the payment card industry does on its own initiative, the less they are likely to face action under the anti-trust rules.


Let me conclude.

A competitive payment cards business in Europe is important for businesses and consumers alike.

Europe still bears the legacy of separate national markets, infrastructures and networks. There is no single payments area yet. Consumers and businesses therefore pay several billion euros per year more than they would in a fully competitive environment.

Today, I am calling on the banking industry to come forward with innovative, constructive solutions. This is the time for them to put proposals on the table. We are opening today a ten week consultation period, and then we will assess all proposals before the Summer break. This is an invitation to the banking world to take responsibility for creating a single payment area, and to deliver concrete and constructive ideas and commitments. And it is an invitation for dialogue.
Let me be clear: European competition law provides a series of powerful tools to bring about more competition. If the consultation ultimately confirms a need for competition enforcement, we will act.

[source: Europa]