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30 January 2007

finextra: EC abandons retailers and backs down on interchange fees

Despite accusing retail banks and credit card companies of maintaining artificially high fees, the European Commission will not recommmend overhauling the controversial interchange fee structure when it publishes its report on the European retail banking markets.

The EC's competition chief Neelie Kroes launched an inquiry into the European banking markets in 2005 following concerns that retail banks and credit card firms imposed artificially high interchange fees on retailers.

But the final report - copies of which have been leaked to the press ahead of publication on Wednesday - doesn't call for the scrapping or reduction of the non-negotiable fees charged on card transactions by credit card companies.

The EC is thought to be reluctant to make radical changes as this would require credit card companies to implement new business models.

The lack of action by the EC on interchange fees will please Visa and Mastercard, the dominant card companies in the region, although the EU is still investigating inter-exchange fees charged by MasterCard for cross-border card transfers. Visa agreed a deal with European anti-trust authorites in 2002 on reducing levels of interchange fees for processing card transactions by the end of 2007.

The report also highlights concerns over the lack of cross-border competition, although the implementation of the single euro payments area (Sepa) from 2008 will eliminate some barriers to competition.

EC investigators are particularly concerned about possible collusion by the region's savings banks and co-operative banks, which hold big market shares in countries such as Germany, France, Italy and Spain, including the refusal to compete with each other in local markets.

The report also criticises the difficulties customers face when attempting to switch accounts between institutions and claims some banks create 'artificial barriers which increase switching costs for consumers'.

In December a group of European competition regulators called for 'account number portability' following the introduction of Sepa which would enable customers to retain their account numbers when switching between banks.

© Graham Bishop

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