European Union regulators threatened banks and credit-card companies with potential fines for blocking competition.
The European Commission, the EU's antitrust regulator in Brussels, said it may probe banks and payment-card providers for keeping competitors out of their markets and overcharging retailers for accepting plastic, the regulator said in a statement today.
The report didn't identify any companies. "The commission will 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 behavior," Neelie Kroes, European competition commissioner, said in a statement today. The regulator, which can fine companies as much as 10% of worldwide sales for antitrust violations, has already challenged how transaction fees are set by Visa International Inc. and MasterCard Inc., the two biggest credit-card networks.
Disputes with Visa and MasterCard have centered on fees paid between banks that are known as interchange. When a consumer pays with a card, the retailer's bank pays the interchange to the consumer's bank. MasterCard and Visa don't collect the fee. Rather, they set guidelines on what banks should charge each other, unless the banks agree otherwise.
The commission report, the result of a year-and-half inquiry, found that retail banking is fragmented along national lines. The EU said there are "large variations" in interest rates and fees. Regulatory barriers also keep banks from setting up operations in other markets, the commission said. The EU agency said banks keep a lock on consumers by charging high fees for closing accounts. Between 5% and 7% of consumers changed current accounts in 2005, the EU said.
Another problem is that banks link different services, such as forcing clients who get mortgages or personal loans to open current accounts or take insurance, the commission said. The commission also said cooperation between savings and cooperative banks may harm competition. The EU didn't criticize any particular country's banking system, such as Germany's Sparkassen or savings banks.
Following a survey of 250 banks, the EU said the report showed that profits for banks that issue credit cards is more than 10 times higher in some countries than in others. The commission said its data suggest that card issuers would remain profitable with "very low levels of interchange fees" or without the fees at all. The EU held back from recommending abolishing the fees.
The EU agency rejected card companies' arguments that cutting the fees would result in higher cardholder charges. "The evidence gathered during the inquiry rather suggests that the pass-through of higher interchange fees to lower cardholder fees is small," the commission said. Cutting credit-card fees would be felt most sharply in the UK, whose biggest issuers are Barclays Plc and Royal Bank of Scotland Group Plc, according to James Buckley, head of research at the Lafferty Group, a bank consulting firm in London.