Sunday

19th Jan 2020

Opinion

Credit card companies are pocketing dazzling profits

  • Retailers in Europe pay a yearly bill estimated by the European Commission to be over €10 billion to banks for accepting debit and credit cards. (Photo: Lotus Head)

Payment card companies such as Visa and Mastercard and the banks that issue their debit and credit cards have been pocketing dazzling profits as a result of unfair competition.

After years the European Union is finally about to end this situation with regulation. This could spur fair competition in the payment markets. However, the regulation risks being undermined in the European Parliament.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 30-day free trial.

... or join as a group

Ironically the politicians who claim to trust the internal market and competition are harming the attempt to ensure fair and efficient markets.

Retailers in Europe pay a yearly bill estimated by the European Commission to be over €10 billion to banks for accepting debit and credit cards.

Part of this can be justified to cover for the costs of installing and operating card payment infrastructure. However the prices of payment services inflate to absurd proportions due to a lack of transparency about the real costs and a lack of effective competition.

Currently, market mechanisms are put on hold in this segment. The costs are based on the fact that for every transaction, retailers pay a fee to their bank known as "interchange", to compensate for transaction costs.

These fees are set by card schemes.

Given the situation of an effective duopoly on the European payment market, it has become almost impossible for retailers to refuse the acceptance of the big two card schemes, VISA and Mastercard, almost regardless of the price they ask.

Since the banks of consumers and retailers share the fee revenues, they are satisfied with high fee levels. This leaves Visa and Mastercard with an incentive to raise the fees, instead of lowering them - a clear abuse of market power.

New and innovative payment service providers are unable to offer the same fees to banks. As a result, they fail to penetrate the payment market and to offer a better deal for retailers and consumers.

The Commission tries to counter this complete lack of competition by at least three important measures.

Firstly, it proposes a cap on the levels of interchange fees for the most widely used payment cards which could reduce the yearly fees by 8 billion euros. Secondly, it provides for the opportunity for merchants to make use of cheaper payment services provided in other EU member states. Finally, it tries to guarantee the right of merchants to refuse payment cards that charge excessively high fees.

Torpedoed

Unfortunately, Pablo Zalba, a Spanish member of the conservative EPP-group who leads the work on the regulation in the European Parliament, is torpedoeing all three measures.

He is proposing to replace a simple fixed percentage cap of the fees with a complex weighted average which would make it impossible to get the required transparency on the fee levels, and can only be implemented with a lot of bureaucracy.

Secondly, he is proposing to narrow the definition of cross border transactions by excluding from the scope the situation where a merchant uses a foreign payment service provider.

This thereby effectively limits the possibility of, for instance, a Spanish merchant to choose a better or cheaper payment service provider from Portugal.

Finally, the Parliament's rapporteur wants to oblige merchants to accept all cards of the same scheme, regardless of their fee level. It is incomprehensible and against the logic of competition to refuse giving merchants the necessary bargaining power to negotiate the lowest price or ultimately refuse cards with unreasonable fee levels.

Fair competition

The Green group in the European Parliament has come up with counter proposals to ensure that merchants and consumers will be able to benefit from real competition in the European payment market.

There should be an effective cap on the interchange fee level for credit cards and a full ban for fees on debit cards. Merchants should be able to refuse cards when they charge excessive fees.

A European market for payments should offer the best service to retailers and consumers instead of the highest profits for banks and the dominant card schemes.

If the conservatives in the European Parliament are as faithful to fair competition as they claim to be, they should revise their position and take such proposals seriously.

Bas Eickhout, Sven Giegold and Jean Paul Besset are Green MEPs

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

Controversial consumer credit bill goes to MEPs

A draft EU law designed to reduce differences between 27 different sets of national consumer credit rules is heading for a crucial test in the European Parliament, with MEPs giving the proposal a mixed reaction ahead of a vote on Wednesday.

MEPs back cap on credit card fees

MEPs have backed plans to cap card payment fees charged to shops by credit card giants Mastercard and Visa in a move aimed at saving €6 billion per year.

Why EU subsidy schemes don't work - the evidence

Counter to popular beliefs among policymakers, the positive effects of support schemes are found to be very limited. In order to revitalise Europe, the newly appointed EU Commission needs to reconsider government's role in innovation and entrepreneurship.

Can the Green Deal – and Europe – succeed?

We have invested €200bn in research and innovation since 1984, but have we achieved any leadership in quantum, semiconductors, storage, artificial intelligence? The simple answer is no.

MEPs: Don't waste your chance to change Vietnam

A growing number of MEPs have become aware of the brutality and unreliability of the Vietnamese regime, and realise that this vote is one of the rare occasions in which they have binding power in EU foreign policy.

News in Brief

  1. 'No objection in principle' on Huawei cooperation, EU says
  2. French aircraft carrier goes to Middle East amid tensions
  3. EU suggests temporary ban on facial recognition
  4. EU industry cries foul on Chinese restrictions
  5. 'Devil in detail', EU warns on US-China trade deal
  6. Trump threatened EU-tariffs over Iran, Germany confirms
  7. EU trade commissioner warns UK of 'brinkmanship'
  8. Germany strikes coal phase-out deal

Column

Why nations are egomaniacs

A nation, Reinhold Niebuhr wrote, is not capable of altruism. Even less so, if such a group has formed on the basis of strong emotions and casts itself as the "saviour of the nation".

Maltese murder - the next rule-of-law crisis in EU?

While Poland's government is escalating its rule of law crisis by introducing even more drastic measures against the country's judges, another problem is looming over the EU's commitment to upholding the rule of law: Malta.

Stakeholders' Highlights

  1. Nordic Council of Ministers40 years of experience have proven its point: Sustainable financing actually works
  2. Nordic Council of MinistersNordic and Baltic ministers paving the way for 5G in the region
  3. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms
  4. Nordic Council of MinistersNordic Climate Action Weeks in December
  5. UNESDAUNESDA welcomes Nicholas Hodac as new Director General
  6. Nordic Council of MinistersBrussels welcomes Nordic culture

Stakeholders' Highlights

  1. UNESDAUNESDA appoints Nicholas Hodac as Director General
  2. UNESDASoft drinks industry co-signs Circular Plastics Alliance Declaration
  3. FEANIEngineers Europe Advisory Group: Building the engineers of the future
  4. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  5. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  6. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues

Join EUobserver

Support quality EU news

Join us