EU report finds profit margins on credit cards can reach 65%

EU report finds profit margins on credit cards can reach 65%

Retailers and consumer groups called yesterday for tough action by the EU to slash the excessive profits made by companies issuing credit and debit cards and to encourage customers to switch to cheaper bank accounts.

They seized on the findings of a 175-page report of a retail banking inquiry, presented by Neelie Kroes, competition commissioner, that found credit card issuers enjoyed profit margins of 65% and debit card issuers had margins of 47% in a market worth €1,350bn (£900bn) a year.

Ms Kroes said: "In quite a few member states, the users of those services are being ripped off. We will not hesitate to take appropriate enforcement action." But she tempered her previous comments about "outrageous" profits, made when she presented the inquiry's preliminary findings last year.

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She ruled out legal action to enforce zero "interchange" fees levied by banks and dominant issuers such as Visa and MasterCard for using cards at retail outlets even though the inquiry found that most banks would still make healthy profits without charging such fees. She merely said she would pursue firms setting "unjustifiably" high fees.

Visa Europe which, with MasterCard, is being investigated for allegedly anti-competitive behaviour by Britain's Office of Fair Trading, welcomed Ms Kroes's "more measured approach" and said it fully supported her aim of boosting competition in the EU payments market.

But Kevin Hawkins, of the British Retail Consortium, urged the OFT to use the commission's findings to "press ahead quickly to bring an end to the anti-competitive behaviour [of Visa and MasterCard] that has gone on far too long."

Jim Murray, director of BEUC, a pan-EU consumer group, said: "The facts are clear: banks do not really compete and make excessive profits from consumers. The current abuse must stop. Consumers need more information, more transparency, combined with easy and cheap ways to switch banks. We count on the commission to make this happen."

The inquiry found only about 6% of current account customers switch banks each year - despite high joining fees and the "tying" of accounts to products such as loans, mortgages and insurance. It also found banks in the EU, which employ 3 million, had annual gross income of up to €275bn and enjoyed pre-tax margins of up to 40%.

Ms Kroes said the inquiry had found widespread competition barriers, which unnecessarily raised the cost of retail banking and deterred new players from entering the market but she suggested her earlier strictures had forced banks in some countries to change their ways.

Guardian Unlimited © Guardian News and Media Limited 2006