Retail banks and credit card companies in the European Union will face sharp criticism from the region's top antitrust regulator tomorrow, following an inquiry that found evidence of anti-competitive practices, artificially high fees and a lack of cross-border competition.
The report detailing the European Commission's findings, a copy of which has been obtained by the FT, states: 'In some member states the combination of high profits, a high level of concentration and the existence of barriers to market entry is worrying, with the banks being able to abuse their market power towards consumers and smallbusinesses.'
The Commission's investigators are particularly harsh on the region's savings banks and co-operative banks, which enjoy big market shares in countries such as Germany, France, Italy and Spain.
Brussels warns that the high degree of co-operation between these banks, including the refusal to compete with each other in local markets, may raise antitrust concerns, and promises closer scrutiny of the banks and of national laws that protect them.
Noting that only a tiny number of consumers switch banks, the Commission report also hits out at 'certain banks that create artificial barriers which increase switching costs for consumers and reduce the intensity of competition'. Retail banks that make the sale of one product dependent on another or impose fees for closing an account are singled out for criticism.
The inquiry, which was launched in June 2005 by Neelie Kroes, the EU competition commissioner, warns credit companies such as Visa and MasterCard - which have already faced Brussels antitrust probes - that the Commission intends to 'resolutely apply' competition law in their sector.
It warns in particular that 'interchange fees' - the charges paid between banks servicing retailers and the banks servicing cardholders - raise competition concerns in several member states.
However, the report does not call for the abolition or even a further specified reduction in fees, even though Ms Kroes has in the past hinted at drastic action in this area.
The apparent softening in the Commission's position on credit card fees is likely to please Visa and MasterCard, which have warned repeatedly that the abolition of interchange fees would throw Europe's payment card system into chaos. At the same time, the two groups and other payment card operators could be frustrated at the lack of clear direction from Brussels, which suggests the legal uncertainty hanging over the sector may continue.
The sector inquiry forms part of a broader attempt by the Commission to get a grip on crucial sectors ofthe economy in which it believes that competition and cross-border trade is not working.
The retail banking probe and similar investigations are not directed at individual companies and therefore cannot directly trigger antitrust fines.
However, officials hope the intelligence gathered during its inquiries will allow the Commission better to pursue individual infringements.
© Graham Bishop
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