Credit card rule probes drawing to a close

Date: 25/06/1998

By Chris Johnstone

COMPETITION officials are expected to wind up investigations soon into a series of credit card company rules which segment the EU market for plastic payments by preventing banks from offering cross-border services.

One of the key cases under investigation by the European Commission involves international payment systems giant Visa's internal rules preventing banks in one EU country from offering credit cards in another unless they have established branches there first. Visa notified the regulation for Commission vetting.

Another concerns broader card company rules which can restrict the freedom of businesses to channel all their international credit card payments through a single bank in a single country.

Special clearance from the credit card companies is sometimes needed to do this, with permission dependent on what sector the business operates in.

"In some payment systems banks are only allowed to acquire an international merchant for all activities within the EU if this merchant falls within certain limited categories such as car rental companies and international hotels," said a Commission official.

Under these rules, other firms such as large retailers and petrol companies are banned from channelling international transactions through one bank and have to use several different ones.

Similar restrictions exist within individual EU countries where card companies can force all business to be channelled through a single bank which has an exclusive licence. This is the case in Germany, for example, where card companies Eurocard and Mastercard only allow one bank to handle transactions.

One of the effects of these rules is to prevent firms from shopping around for the bank which can offer them the best level of service and the lowest costs.

In spite of such limitations, centralised payments have boomed in the past decade as companies have attempted to drive down expenses by taking advantage of better communications and low-cost locations.

Credit card company Europay says that cross-border payments are a relatively minor issue, with 80% of all plastic transactions taking place in the country where the card is issued. "There is a limited demand to be able to get a card in another country," said a spokeswoman.

She added that credit card firms were keeping an eye on cross-border issues, but feared that a relaxation of national controls could make credit card fraud easier.