EU competition commission takes on the credit card lenders

FRIDAY, APRIL 14, 2006

After the announcement by the Office of Fair Trading that UK credit card fees were “excessive”, it seems that the EU is having a swipe at the credit card companies too.

The EU competition commissioner, Neelie Kroes, called on credit card issuers to reduce their fees, labelling them “outrageous”. Ms Kroes singled out Visa and Mastercard, as well as the other leading banks, telling them to reduce their charges on international transactions or face heavy fines of up to 10% of their turnover.

In an interim finding, the EU said that individuals in Europe could save several hundreds of euros each year if the credit card industry opened itself up to full competition.

Each year, 23 billion credit card transactions are made in the 25 EU member states amounting to a turnover of £935 billion. The EU argues that if the same domestic charges were to apply to international payments, then something like 100 billion euros could be saved each year.

The UK makes up nearly 60% of all Europe’s credit cards. Ms Kroes pointed out that UK retailers pay nearly five times as much in fees for a MasterCard credit card as they do for a MasterCard debit card. Polish banks, however, pay eight times as much for a Visa transaction as a British bank. The commissioner also noted that small businesses were paying 60% to 70% higher fees than large businesses on international MasterCard and Visa transactions, and called for a convergence in pricing by opening up the internal market to increased competition.

The company that represents credit card lending industry in the UK said that the claims of excessive profits were baseless. The EU credit card lenders have ten weeks to respond.