Brussels, 17/01/2007 (Agence Europe) - During a Visa organised press conference in Brussels on Monday 15 January, the president of the Visa Europe association, Peter Ayliffe, defended the specific status of payment cards on the European market. The Visa network has until now benefited from an exemption to certain aspects of legislation on competition, an exemption that could clearly be challenged by the Commission investigation in the retail banking sector, whose report is expected out at the end of the month. The Commission is pursuing this investigation within the framework of the directive on the Single European Payment Area (SEPA, EUROPE 9312).
In his press statement Ayliffe affirmed, “We stand at a crossroads and I would appeal to regulators to think twice before they reverse a trend which benefits not just individual participants but the local, national and regional economies of Europe”.
This pre-emptive reaction to the Commission report is not unjustified. The intermediary April report on payment cards (EUROPE 9173) had already created several problems with regard to competition; especially reservations about compliance between the “interchange system” and Article 81 of the EC Treaty.
The Visa system depends, as it happens, on this “interchange system”. It does not issue the cards itself but does provide the network for the banks. Each purchase carried out with a Visa card therefore involves four different parties: the trader, his bank (“the acquiring bank”), the purchaser's bank (“the issuing bank”) and the purchaser himself. The Visa network facilitates communication between the banks - the interchange.
For every transaction executed through this interchange, the acquiring bank has to pay fees to the issuing bank, which is where the problem lies. This actual arrangement does not entirely comply with the EC Treaty but has, however, benefited from a Commission derogation (COMP/D1/29.373) to it since 2002. An official from DG Competition involved in the case informed EUROPE that, “the interchange fees are set collectively by the issuing banks…which allows for the exploitation of market power to the detriment of the traders”. In this context he also indicated that there were other investigations being pursued in Poland and Austria (EUROPE 9329), which will make clear reference to “cartels” between issuing banks, and could also be taken into consideration in the Commission's report.
According to Visa, the interchange system is indispensable to the effective functioning of the retail market in Europe. Getting rid of it and imposing a system based on the three part (instead of four) American Express system could create higher costs to customers.
Visa justifies its position by pointing to the advantages of payment cards to society in general, and draws on the assessment made by McKinsey consultants which contests that, indirectly, the use of cash costs everyone €200 every year. Although the Commission is seeking a reduction in transaction fees (which can represent up to 3% of GDP in the eurozone), Ayliffe claims that the Commission should promote payment cards in an effort to replace the inefficiency of cash. It impossible, however to make a fair comparison with this argument and when asked by EUROPE, Mr Ayliffe was unable to provide a comparative estimate as to the costs of using payment cards, which include costs for losses incurred, fraud, infrastructure and direct fees. The official from DG Competition also considers that the argument about the efficiency of these cards only applies for payments above €10 (or another equally low threshold), below which cash remains less costly for shopping.
Even if the report does challenge the interchange system, Visa has nothing to fear in the immediate future. As the DG Competition official explained, the report will not lead to immediate changes to legislation but “will highlight problems and possible ways forward”. The fate of the interchange system is more likely to be decided by a different decision made by the Commission. Attention is therefore turning to the current investigation into MasterCard practices on European territory, the result of which is likely to have more of an impact on Visa's future in the Union. (cd)