EU Opens Inquiry Into Visa Europe's Payment-Card Fees (Update3)

March 26 (Bloomberg) -- European Union antitrust regulators opened a probe of fees set by Visa Europe Ltd., the regional franchise of the world's biggest credit-card network, three months after ruling MasterCard Inc.'s similar transaction fee is illegal. The European Commission in Brussels said in a statement today it is examining so-called interchange fees, paid between banks on each transaction, after a 2002 settlement expired at the end of last year. Visa Europe -- which separated from Visa Inc. before the U.S. company's initial public offering -- responded today that it is seeking a new settlement. EU Competition Commissioner Neelie Kroes has likened the fee to a tax driving up prices on all consumers. The investigation opens the way for an overhaul of the industry, which potentially could cost banks billions of euros of fee revenue, after the EU agency on Dec. 19 ordered MasterCard to revise how it sets its fee. ``The interchange fee is probably set at well over what it actually costs the process and the gap has been a substantial source of revenue for the banks,'' Derek Chambers, a banks analyst at Standard & Poor's Equity Research Ltd. in London, said in a telephone interview. ``If it is lowered or removed it would free up competition and that could mean lower fees for banks potentially.'' Visa Europe said in a statement it expected the investigation as ``a standard procedural step.'' The London- based company said it is continuing talks with the commission toward a new settlement. ``Interchange is a mechanism for ensuring the maximum benefit to all who use card payment systems,'' Visa Europe said. ``A substantial reduction in interchange would see a disproportionate shift in the costs of the card payments system from retailers to consumers.'' Merchants argue that interchange fees inflate prices for shoppers by as much as 13.5 billion euros ($21.2 billion) a year in the 27-nation EU, according to the European Retail Round Table, a lobby group for 14 retailers. Since stores typically charge the same for cash or cards, the cost is borne by all shoppers, not just those who make the 23 billion card payments worth more than 1.35 trillion euros in the region each year, according to the commission.
While Visa and MasterCard set the interchange fees, the money goes to banks that issue credit cards. Europe's biggest card issuers include Royal Bank of Scotland Group Plc and Barclays Plc of the U.K., as well as Credit Agricole SA and Credit Industriel & Commercial, a unit of Credit Mutuel. In the MasterCard case, the EU decision applied to transaction fees on purchases made by consumers outside their home countries. MasterCard has appealed the ruling to a European court in Luxembourg.
To contact the reporter on this story: John Rega in Brussels at jrega@bloomberg.net.
Last Updated: March 26, 2008 09:24 EDT