The EC publishes its report on payments future

Thursday 8 February 2007

This report is an intermediary step on the way to SEPA (Single Euro Payments Area) implementation. The report identified several obstacles to a fair and free competition between payment organizations in Europe. For instance, the same operation with the same type of card may cost three times more in Portugal than in Italy. According to Neelie Kroes, opacity rules when it comes to commissions incurred by cardholders as well as merchants. The report insists on establishing a more transparent competitive payment environment, especially on the subject of interchange fees, the commissions paid to a card issuer by the acquirer of a transaction. The report considers several obstacles to an open competition:

Market concentration in some countries, especially a concentration of acquirers.
Variations in interchange commissions.
Entrance barriers set by existing players in some markets.
Linked sales, for instance, when a customer is sold a card as a complement of a credit.

The Commission believes in self-regulation, but remains ready to use its regulation powers if it feels necessary. Total card payments represent EUR 1,350 billion over the EU, on a yearly basis, and generate approximately EUR 25 billion in commissions.

In January, Visa and MasterCard expressed concerns about a potential prohibition on interchange fees (cf. Smart Insights #07-04). Now, Visa made a statement saying it strongly supported the aim for a better competition expressed by the EC, and it was reassured the report did not call for a ban on interchange fees, even if some uncertainties still exist. According to Peter Ayliffe, President and CEO of Visa Europe, "without interchange, it would be difficult to deliver SEPA, ands it could lead to the end of cards for all, as costs for the consumers would increase".

MasterCard regrets there is still a cloud of uncertainty around interchange fees, that could be seen as an obstacle on the road to SEPA implementation. MasterCard reaffirms its position saying uncertainty could slow down the replacement of cash, which is more expensive, less convenient and less secure than cards.