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The European Union's 500 million consumers are getting a raw deal from banks and card companies, according to an investigation by the bloc's executive body that recommends antitrust action to cut prices.
The European Commission's competition chief Neelie Kroes launched a study into European retail banking markets in 2005.
The final outcome, to be published on Wednesday, shows that markets are fragmented along national lines with a wide variety of profit margins and prices among EU member states but not within countries, according to a draft obtained by Reuters.
The study uncovered competition concerns over payment systems, credit registers, cooperation between banks and setting of prices and policies. 'Antitrust enforcement may be able to address several of the competition issues identified in the sector inquiry,' the report said.
'Areas for potential action include firstly access barriers, discriminatory rules, fee structures and governance arrangements in some payment card networks and clearing and settlement systems,' it said.
'Secondly, enforcement action might also be appropriate in relation to high interchange fees and merchant fees in some payment card networks,' the report added.
EU plans to create a single euro payments area (SEPA) from 2008 would tear down some barriers to competitors, it said. Retail banking provides more than 3 million jobs and generated gross income of 250 billion euros (165 billion pounds) to 275 billion euros ($355 billion) in 2004, equivalent to 2 percent of the bloc's economic activity.
CARD FEE CONCERNS
Payment cards, whose transactions topped 1.3 trillion euros in 2005, are a particular concern. 'The (inquiry) has identified several significant competition issues in the European payment cards market that confirm the need for strong competition law enforcement in close cooperation with national competition authorities,' it said.
So-called interchange fees come under the spotlight. Under the current system, a retailer's bank pays a card issuer's bank an interchange fee -- a percentage of each purchase -- to process card-based transactions. 'The identified multilateral interchange fees raise competition concerns, particularly in some countries,' the report said.
Issuing cards without income from interchange fees was profitable in 20 of the bloc's 27 members, the report said. Rules on access and governance arrangements and membership fees make it difficult for competition to flourish, it said.
International cards are dominated by Visa Europe and MasterCard, both already subject to separate probes. Most domestic debit card networks set significantly lower interchange fees than international networks' transactions, the report said, with some not charging at all.
The report made no mention of any radical overhaul -- sought by retailers -- of the interchange fee system.
Other concerns uncovered include:
Credit registers: open and affordable access to good quality credit data is key for banks wanting to provide retail services such as loans and cards, but widespread credit data is not available in several states.
Setting of prices and policies: consumers find it expensive to switch to another bank.
'The inquiry has found that some banks create artificial barriers (for example, tying banking products or imposing high closing charges) which raise switching costs for consumers and thus reduce the intensity of competition,' the report said.
Tying products to a bank account may be an abuse of dominance in some markets, the report added.