Kroes: Credit card firms' profits are 'outrageous'

Credit and debit card operators face legal action within weeks, the European Commission said yesterday, after issuing a warning that "outrageous" profit margins are costing households several hundred euros a year.

Neelie Kroes, the European competition commissioner, said she was "fed up" with the behaviour of key players in the massive markets for credit and debit cards, promising "action from our side". The firms have a 10-week consultation period in which to come up with ways to avoid lawsuits for abusing their dominant market position or operating cartels.

"The more they do to bring profits from card payments down to acceptable levels, the less likely they are to face action under EU antitrust rules," Ms Kroes said.

A report based on an investigation into payment cards said customers are paying too much because the industry is conducted along national lines and technical barriers prevent new card providers entering the market.

The sector is highly lucrative, with 23 billion transactions in Europe in 2004 worth about €1,350bn (£934bn) in payments. Because banks deal jointly with retailers instead of competing directly for their business, there is little choice of payment networks for many firms.

Ms Kroes said she wants a European car payment system to compete with Visa and MasterCard which have a powerful grip on the market. She said: "Banks charge up to 2.5 per cent on every retail purchase with a payment card, the equivalent of a tax on consumption. Moreover, the fees paid by small firms such as retailers for accepting payment cards in one country can be six times more expensive than in another.

"Consumers also pay more in one part of the European Union than in another. The holder of the same international card may pay 12 times more in one country than in another country." She described the margins under discussion as "outrageous".

A spokesman for Visa Europe said: "Over the past four decades the European payment card system has developed to provide consumers, banks and merchants with universally accepted products. Competition has ensured the costs to all are balanced in a way that has allowed the system to flourish, providing the world's 1.3 billion Visa cardholders with acceptance at over 24 million merchants."