Select Committee on Treasury Minutes of Evidence

Memorandum by MasterCard/Europay UK Ltd


  1.1  MasterCard/Europay UK Ltd (MEPUK) is submitting written evidence to the Treasury Select Committee's Banking inquiry in its capacity as the representative body of the majority of the licensees of the Europay International (EPI) and MasterCard International (MCI) trademarks in the UK.

  1.2  Given the rôle of MEPUK, the submission focuses on the Government's intention to introduce legislation to regulate competition in the market and the proposed establishment of a sectoral regulator, PayCom.

  1.3  This proposal is based on recommendations made in the report on Competition in UK Banking, published in March of this year. These recommendations were based on the premise that the payments industry is similar to utility industries, where network effects allow the owners of a network to exert market power.

  1.4  MEPUK believes that the payment card industry is already highly competitive, with healthy competition between card issuers and acquirers and also between individual payment scheme networks. Consequently, the regulatory model used to promote competition in utilities, where there is typically a single distribution network, is wholly inappropriate for the payment card industry.

  1.5  Further, access to the Europay/MasterCard scheme is open to all authorised institutions, whether traditional banks or companies established by commercial companies such as supermarkets or department stores. It is to the benefit of the scheme to promote membership to as many suitable organisations as possible.

  1.6  The payment card industry is subject to the normal competition law requirements in the UK and elsewhere; MEPUK contends that the current powers available to the competition authorities are sufficient to address any potential issues that may arise in the industry.

  1.7  MEPUK also argues that the impact of the introduction of an additional payment schemes regulator may have an adverse effect on the industry by:

    —  inhibiting competition and limiting the substantial benefits for consumers, SMEs and larger corporates delivered by the schemes;

    —  deterring innovation and the development of new technologies;

    —  causing a dilution of the consumer protection measures currently provided by the schemes; and

    —  increasing costs to the schemes and, consequently, to cardholders and retailers as the end users of the schemes;

  1.8  In particular, inappropriate regulation would endanger the UK's role as a key influencer in the industry internationally, including the promotion of consumer benefits through innovation;

  1.9  Finally, the proposals for the regulation of payment card schemes, as they currently stand, do not take account of the international nature of many of the schemes and may result in the UK industry being placed at a disadvantage in the global market place.


  2.1  MasterCard/Europay UK Limited (MEPUK) is an association of licensees of the Europay International (EPI) and MasterCard International (MCI) trade marks in the UK.

  2.2  MEPUK does not itself carry on any licensing activities; does not issue payment cards or accept transactions made with any payment instruments; and does not have any relationship with merchants or cardholders.

  2.3  MEPUK provides a forum for members to discuss non-competitive issues of mutual interest relating to the operational aspects of the payment schemes operated by EPI and MCI, within the UK and globally, and provides a conduit for views to be transmitted between its members and MCI and EPI. The organisation also holds the UK licensees' shareholding in EPI.

  2.4  On 1 March 2000 under delegated authority from EPI, MEPUK assumed responsibility for maintaining UK domestic rules for the Eurocard/MasterCard product. These rules are variations of the product rules published by EPI and MCI, which are specific to UK domestic transactions. Under the delegated authority, the rules cannot be inconsistent or conflict with the global and European operating rules set by MCI and EPI respectively.

  2.5  In order to confirm that its rules are in compliance with UK competition law, MEPUK made an application on 1 March 2000 to the Office of Fair Trading for an exemption for Chapter I of the Competition Act 1998 in respect of these UK Domestic Rules, and of its Memorandum and Articles of Association.

  2.6  Prior to the Competition Act 1998 coming into force, MEPUK had routinely notified its Memorandum and Articles of Association under the Restrictive Trade Practices Act 1976. On each occasion the documents were found by the OFT not to be registrable.


  3.0.1  MEPUK believes it may be helpful to provide a brief overview of how card payment schemes operate, together with an explanation of some of the terminology used.

3.1  Card Payment Scheme

3.2  Explanation of a Typical Point-of-Sale (POS) Transaction:

  3.2.1  The above diagram illustrates the flow of transactional data and corresponding funds in respect of the payment made with a credit or debit card at a merchant.

  Step 1— The Cardholder purchases goods or services from the Merchant. If the transaction amount is over the floor limit (a minimum monetary value) the Merchant is required to contact its Acquirer to obtain an authorisation, before completing the transaction.

  Step 2— The Merchant passes the transaction data to its Acquirer, and receives the face value of the transaction less a merchant service charge.

  Step 3—The Acquirer submits the transaction via the payment scheme's network to the Card Issuer for settlement. (In certain circumstances the transactions are sent directly to the Card Issuer.) The Card Issuer settles with the Scheme for the value of the transaction less an Interchange Fee and the Acquirer is reimbursed by the Scheme—again less the Interchange Fee. The Issuer and Acquirer are each charged a fee by the Scheme for this clearing and settlement service.

  Step 4—The Card Issuer debits the transaction to the Cardholder's current account or a separate card account, which is subsequently paid by the Cardholder according to the terms and conditions of the cardholders' agreement with the issuer.

3.3  Card Issuers

  3.3.1  In the UK there are currently 69 institutions that issue credit cards, including foreign banks, building societies and supermarkets, as well as the more traditional issuers, the High Street Banks. A list of the UK licensees of the MCI and EPI schemes are attached at annexes I-III.

  3.3.2  As a result of co-branding relationships and joint ventures many organisations, including British Airways, Virgin and Tesco, have launched credit card programmes (through a partner bank) and enjoyed the benefits of scheme membership without becoming members in their own right.

  3.3.3  To give an idea of the rapid development of the credit card market over the past decade, in 1990 there were approximately 80 UK issued differently branded credit cards—today that figure is 1,200.

  3.3.4  Many issuers will also issue debit cards to their customers.

3.4  Merchant Acquirers

  3.4.1  Merchant acquirers provide the interface between merchants and the payment schemes, facilitating the rapid clearance and settlement of card transactions.

  3.4.2  Of the 56 Eurocard/MasterCard UK licensees of Europay there are currently 13 that are acquiring point of sale transactions in the UK. Most of these acquirers offer the service to their corporate customers, while the six or seven larger acquirers actively market their services to all merchants. The remaining 43 Eurocard/MasterCard licensees are permitted to acquire but do not choose to do so.

  3.4.3  There are also a number of institutions situated outside the UK that are licensed to acquire transactions from international merchants in the UK, on a cross-border basis.

  3.4.4  Evidence of keen price competition between acquirers is reflected in an average churn of retailers of between 15 per cent and 20 per cent per year.

3.5  Merchants

  3.5.1  Merchants (retailers), as entities that accept payment cards, are one of the end-users of payment scheme services.

  3.5.2  Merchants are increasingly benefiting from the acceptance of payment cards in their businesses. As well as their use in face-to-face transactions for which payment cards were originally designed, the use of payment cards for remote transactions—mail order, telephone order and e-commerce transactions—greatly increase the number of customers that merchants can reach.

  3.5.3  By their acceptance of payment cards, merchants are able to increase turnover (and profit) as cardholders use credit/charge cards to make larger purchases as well as spontaneous purchases of goods that might not otherwise have been bought. The Merchant also benefits from improved cash flow as it receives early settlement for goods purchased with payment cards.

  3.5.4  In addition, Merchants who follow the required operational procedures benefit from a payment guarantee in respect of cardholder default, enabling the merchant to sell to customers whose creditworthiness is not known. Where the identity of the cardholder is checked (eg during face-to-face transactions) the merchant is also protected from the risk of fraud.

3.6  Cardholders

  3.6.1  Cardholders are the other key party as end users of scheme services. In addition to the obvious benefits of being able to make spontaneous and planned purchases with flexible repayment terms, many cards offer additional benefits to cardholders, such as free insurance on the goods that they have purchased.

  3.6.2  Credit cardholders benefit from protection in the event that goods or services paid for by a credit card are not delivered by the merchant or prove to be faulty. This is achieved through the connected lender liability of issuers under section 75 of the Consumer Credit Act. Additionally the schemes' chargeback rules allow the cardholder in many cases to obtain redress against the merchant in the event of disputes arising through the use of his card. This is especially important in respect of purchases made abroad.

  3.6.3  Cardholders benefit from what is in effect a universal currency accepted in over 17 million outlets worldwide.

  3.6.4  Cardholders are generally protected against the fraudulent use of their card(s) provided they have not facilitated the fraud.

3.7  Scheme

  3.7.1  The scheme provides the infrastructure to allow consumers to make payments to merchants easily and cheaply throughout the world. This is achieved by the establishment of:

    —  a recognisable global acceptance brand;

    —  standards harmonisation;

    —  management of risk;

    —  the recruitment of millions of merchants by the acquirers;

    —  a global authorisation system for transactions; and

    —  an efficient clearing and settlement system, handling millions of transactions each day.

  3.7.2  The scheme acts as principal within the system, settling with its acquiring members before receiving value from its issuing members. As a consequence, the scheme assumes the settlement risk in the event of default by a Member (either issuer or acquirer).


  4.0.1  Despite the factual inaccuracies contained in the Report on Competition in UK Banking and the limited opportunity for input afforded to the schemes by the Banking Review Team in framing its conclusions, MEPUK is keen to work with HM Treasury to achieve a common understanding of the issues involved, and to find an appropriate way forward.

  4.0.2  To this end MEPUK made a submission detailing its concerns to HM Treasury as part of the informal consultation on the Government's proposals which closed on 5 June.

  4.0.3  Summaries of our main concerns are described in the following sections.

4.2  Nature of Proposed Licensing Regime

  4.2.1  In seeking to frame a response to the proposed establishment of a licensing regime MEPUK is hampered by the fact that no detailed proposal has yet been issued by HM Treasury to which we can frame an informed response.

  4.2.2  Two possible structures have been mooted.

  4.2.3  The report on Competition in UK Banking suggested that a sector-specific utility type regulator in the mould of Oftel or Ofgem was envisaged, with on-going rule making powers to police the activities of those companies active in the payment services industry.

  4.2.4  MEPUK's current understanding is, that although no options have yet been ruled out by HM Treasury, they are also considering introducing class licences to cover participation in payment card schemes.

  4.2.5  Should either, or indeed a combination of the two, be introduced, MEPUK harbours serious concerns about their appropriateness to the card payment industry. There are also concerns regarding the workability of a licensing regime operating solely in the UK but which is seeking to regulate schemes that are International in nature.

4.3  Inappropriate Regulatory Model

  4.3.1  The Banking Review Recommendation to establish a licensing regime for payment systems is driven by an assertion that such systems are "similar to other utilities".

  4.3.2  MEPUK believes that it is inappropriate to apply a utility model of regulation to card payment schemes. The argument for regulation in the water, electricity or gas networks rests mainly on the fact that there is a single network and that it is uneconomic for a competitor to duplicate this network, implying that they are "natural monopolies". This natural monopoly characteristic is driven by two elements: very strong economies of scale, where the cost of each additional unit falls, due to significant fixed costs; and strong network externalities, where the value of the service for all participants increases as the number of network members increases.

  4.3.3  The relevant question to be asked is whether the characteristics of card payment schemes match the characteristics of such natural monopolies.

  4.3.4  It is true that there are fixed costs associated with the establishment of a card payment scheme and card payment schemes therefore exhibit some economies of scale. Network (or demand-side) externalities are also evident, since the more merchants that accept a certain payment card, the more attractive it becomes to consumers to have that card, and the more consumers that have a certain payment card, the more attractive it becomes for merchants to accept that card.

  4.3.5  Similarly the more merchants (and their banks) that accept an alternative method of payment, such as a cheque standard, the more attractive it is to use cheques.

  4.3.6  However, the mere existence of such features by no means implies that a network is inherently monopolistic. The level of the economies of scale available to card payment schemes is not so high as to dissuade other parties from entering, as evidenced by the multiple competition card payment schemes that exist in the UK. There is clearly room in the market for many schemes—not to mention other forms of payment—as individuals and merchants are happy to belong to more than one network.

  4.3.7  Given the number of different schemes, it is important that these schemes co-operate on standards where this is of benefit to customers. Contrary to much of the experience with the utility industries, the internationally recognised card payment systems—including, for example, MasterCard/Eurocard, Visa, American Express, JCB and Diner's Club—have developed this co-operation. Common terminals are used for most card transactions at the point-of-sale and ATMs generally accept most cards. These standards were driven by merchant and consumer demand and were delivered by the industry without the need for any regulatory intervention.

  4.3.8  Network externalities usually give rise to a so-called "critical mass"—a minimum number of users required in order for the network to take off successfully. Below this threshold, the network cannot sustain itself. In the case of a card payment scheme, sufficient consumers using the scheme's card and merchants accepting it are necessary for it to be viable. However, the current marketplace shows that the critical mass for such systems is not high. The success of store cards demonstrates that it can be sufficient that only one retailer accepts the card in order for the card scheme to take off. Hence, the critical mass for card schemes is low, and as a result the market can support several competing schemes.

  4.3.9  In addition, the co-existence of such a variety of alternative payment systems (charge cards, credit cards, debit cards, cheques and cash), all of which actively compete with each other, demonstrates that payment systems, and card payment schemes in particular, are not natural monopolies. Nor do they have the characteristics of a natural monopoly. Network competition between these payment systems and between card payment schemes is extensive and growing. Technological change means that no payment scheme can count on retaining its customers in an uncertain future world.

  4.3.10  Against this background, it is useful to consider the developments in regulating the telecommunications sector. Many parts of the traditional network are no longer considered natural monopolies, mainly due to technological developments such as optical fibre of broadband cables. The cost of duplicating these networks has fallen relative to the benefits of upgrading the network functionality. Thus, in telecoms, competition has been successfully introduced between long-distance telephony networks, and the local telephony network is facing increasing competition from alternative networks (in particular from cable and mobile services). In response to these developments, these networks are being increasingly deregulated, whilst the services provided across the telecommunications network are almost completely deregulated, with market participants relying on competition law to resolve disputes. Thus, even within the utility sector, regulation is turning towards competition law where the underlying market structure no longer reflects a natural monopoly.

  4.3.11  For these reasons, MEPUK does not believe that a model of regulation that has been developed for utilities is applicable for the card payments industry. Competition is strong across different payment systems and between different card payment schemes, and normal competition legislation is sufficient to deal with any abuse that might arise in the market.

4.4  Regulatory Risk

  4.4.1  MEPUK believes that the introduction of utility-type regulation and/or a class licence for card scheme users in the UK would present considerable regulatory risk to existing and potential members of the scheme in the UK.

  4.4.2  Such regulation could adversely affect innovation, discourage entry and disadvantage UK members within the global market and hence harm the broader UK interest.

  4.4.3  A regulator would necessarily structure any licensing regime based on existing technologies; in a market that is rapidly evolving, this could potentially distort the competition between existing and new technologies. This could result in the favouring of existing technologies, thus stifling innovation, or they might be subject to overly-harsh regulation, which would deter entry of potential members.

  4.4.4  Early indications suggest that the regime would be complaint-driven, adding to the uncertainty concerning the regulatory position in the UK. As a consequence possible new entrants may be discouraged with the business then being handled from a different country; this will particularly be true in respect of e-commerce companies who will be able to access the schemes from those locations that provide the most stable and favourable environment.

  4.4.5  Without regulatory intervention, market forces have already fostered the only global currency (credit cards and debit cards), and are also presently creating new schemes—such as beenz—for the settlement of internet transactions. It is inconceivable that such innovation would be better harnessed under a prescriptive regulatory regime than it is under existing arrangements.

  4.4.6  Furthermore, any action on the part of the Government that makes the UK a less attractive market would jeopardise the Government's broader policy objective of making the UK the most propitious environment in the world for the establishment of e-commerce enterprises.

4.5  Regulatory Arbitrage

  4.5.1  Payment systems are already subject to various layers of competition and anti-trust law at UK, European and global levels. In seeking to introduce an additional layer of regulation in the UK, consideration must be given to:

    —  The interoperability of the various existing competition rules to which the scheme is subject.

    —  The impact that a ruling or imposition of a remedial action by any one of them will have at a global and European level.

    —  Whether the introduction of an additional layer of regulation in the UK would frustrate the proper application of those competition rules.

  4.5.2  The principal competition regimes to which the schemes are subject are as follows:

    —  In the US, the operation of the schemes is subject to scrutiny under the anti-trust rules found in the Sherman Act of 1890 and the Clayton Act of 1914, as amended by the Robinson-Patman Act of 1936.

    —  At EC level, the schemes must operate in accordance with the provisions of the EC Treaty relating to competition (Articles 81 and 82).

    —  In the UK, the schemes are also subject to compliance with the new Competition Act 1998 and the monopoly provisions of the Fair Trading Act 1973.

  4.5.3  MEPUK believes that these existing competition rules are satisfactory and more than sufficient to address any competitive shortcomings in the market that might arise. As the Government already has recourse to a wide range of investigative and remedial powers under UK competition law, the introduction of an additional layer of regulation is both unnecessary and unwarranted.

  4.5.4  That these various layers of competition law actively and effectively regulate the operation of the scheme is demonstrated by the various actions currently taking place at each level:

    —  In the US, the Department of Justice asked the US District Court in New York to rule on two alleged violations of section 1 of the Sherman Act arising from the alleged anti-competitive effects of duality in the MasterCard and Visa Schemes and alleged exclusionary rules and practices. This action is in progress and a verdict is expected to be reached in the near future.

    —  In 1993, the EPI and MCI rules were notified to the European Commission by EPI, and, in 1997, a complaint against Visa and MasterCard was made by EuroCommerce, an organisation representing the interests of certain retailers across Europe. It is understood that the Commission intends to make a decision on the notifications and the complaint before the end of the year.

    —  As detailed in section 2.5, MEPUK has made an application to the OFT for a decision that its UK Domestic Rules and Memorandum and Articles of Association are in compliance with the Competition Act 1998. A decision is expected to be made by the DGFT by the end of the year.

  4.5.5  The competition rules and relevant competition authorities inter-operate with each other at a variety of different levels, in particular:

    —  Because of the hierarchical nature of the rules that apply in the operation of the scheme, any action taken by the US anti-trust authorities with respect to the MCI international rules (MCI is domiciled in the US) will have a direct impact on the application of those rules to the operation of the scheme in the UK.

    —  Similarly, any action taken by the EC with respect to the Europay rules will have a direct impact on the application of those rules to the operation of the scheme in the UK.

    —  It is a fundamental principle of the Competition Act 1998 in the UK that its provisions will be interpreted and applied as far as possible in a manner consistent with EC competition rules. Therefore, any treatment of similar issues under EC competition law will have a direct bearing on the treatment of those issues in the UK under the Chapter I and Chapter II prohibitions of the Competition Act. This results in close co-operation and dialogue between the EC and UK competition authorities.

    —  Furthermore, there is an active co-operation agreement and dialogue between the US authorities and the EC regarding anti-competitive activities in the territory of one party that adversely affect the interests of the other party.

    —  This approach is in line with moves by the WTO in considering the harmonisation of the approach to the application of competition rules to industries that necessarily transcend national borders, and has the effect of ensuring as far as possible a consistent approach to the application of competition rules internationally.

  4.5.6  It is clear, therefore, that additional UK regulation that goes beyond the scope of the existing rules may have the consequence of rendering their application largely ineffective and incoherent by applying inconsistent principles and rules. Their introduction would create uncertainty as to when the existing competition rules should be applied and upsetting the complex balance and consistency that has been achieved through the development of an international hierarchy of competition rules and remedies as well as the system of co-operation between the various authorities.

4.6  Other International Considerations—Scheme Rules

  4.6.1  The payment schemes operated by EPI and MCI are global in nature, with members in over 200 countries around the world.

  4.6.2  In order to maintain the integrity of the scheme, global acceptance of the product, interoperability at the point of sale and to restrict fraud, it is essential that all participants are subject to a minimum set of rules and operating procedures.

  4.6.3  These are maintained by MasterCard and are always applicable in respect of transactions where a card from one region of the world is used in another.

  4.6.4  While there are limited variances to the global rules, usually to reflect different banking and structural differences in a region or country, these regional or domestic rules must not be inconsistent or conflict with the global rules.

  4.6.5  Therefore, whilst MEPUK enjoys a limited number of rule-making powers delegated to it by Europay International, the vast majority of the rules governing the activities of its members are made outside the United Kingdom.

  4.6.6  MEPUK believes that the fact that most rules are set globally, would present serious challenges to the workability of a UK-based licensing regime, which attempts to control the operation of the scheme in the UK.

  4.6.7  Constraints on UK members would result in those members being at a disadvantage compared to non-UK members who operate outside the jurisdictions of the UK regulator. As a consequence new entrants could be influenced to locate themselves outside the UK. Similarly, merchants may choose to work with non-UK members or establish themselves outside the UK.

  4.6.8  Additional regulation may also hamper the ability of major players from expanding their global payment business.

4.7  Other International Considerations—Settlement Risk

  4.7.1  The Treasury has signalled concerns about the criteria under which companies are eligible to become acquirers, and the impact those criteria may have on competition.

  4.7.2  Under existing Europay international scheme rules, all members, issuers and acquirers, must be regulated credit institutions—or must be owned and controlled by such institutions. This requirement provides a default due diligence benchmark to ensure the financial suitability of scheme members.

  4.7.3  The Banking Review Report contends that these requirements are unnecessary, and that the risks are no greater than those incurred by other industries. However, whereas in other industries a company is able to choose who they do business with, when joining a payment scheme a member has to deal with all the other members. In addition, when dealing with the movement of funds, the sums at risk are far greater than the associated income.

  4.7.4  Whilst it is the case that most settlement risk derives from the failure of an issuer to fulfil its obligations to the scheme, very substantial liabilities can derive from acquirers' responsibility for the actions of their merchants. Under scheme arrangements the acquirer is liable towards of the issuer (and therefore the cardholder) for transactions that have been incorrectly processed and for goods and services that are either defective or not provided.

  4.7.5  In particular, where there is delayed delivery of goods or services, the failure of a merchant can give rise to a very large number of disputed transactions. The higher the average value of purchases and the longer the delay in delivery, the greater the potential liability—it is not unusual for acquirers to take losses of millions of pounds in the event of the failure of a large merchant. Should an acquirer fail in such circumstances this would result in reputational damage to the brand as well as financial loss for the payment scheme and its members.

  4.7.6  It is therefore necessary that acquirers have sufficient financial strength to withstand the failure of its merchants. The financial requirements and the regulatory regime applicable to authorised institutions in the UK ensure that such institutions have a minimum level of financial strength to cope with such liabilities.

  4.7.7  If the UK authorities were to seek to enforce a rule whereby acquirers would be entitled to enter the market without first being an authorised institution, Europay/MasterCard would be required to re-assess its involvement in the UK.

  4.7.8  The scheme would need to establish a regime to replicate the role of the regulator in assessing and monitoring such acquirers, which would inevitably add substantial costs to the operation of the scheme. Such costs would be borne by UK members, and, through them, by UK consumers and retailers.

  4.7.9  At an international level the scheme rates countries according to the risk that they present to the scheme as a whole. Any reduction in or dilution of the due diligence benchmark currently provided by the requirement that members must be appropriately regulated credit institutions may cause the scheme to seek guarantees of other security from all members in the UK—as they do currently for the old Soviet republics.

  4.7.10  Presently, MasterCard guarantees to meet the obligations of a failed member to other members of the Scheme. This guarantee is predicated upon all members being regulated institutions with active supervision of their activities. However, if one country was to remove this fundamental requirement the other members of the scheme might decide to withdraw this settlement guarantee for members in that country, which would result in the liability being pushed back to the end users—ie the cardholders and merchants.

  4.7.11  It is essential that a balance between prudential and competition regulation in this area is maintained, in order to retain the dynamic edge that the UK currently enjoys as being among the world's leaders in cards innovation.


  5.1  Card payment schemes' interest in the Market for Small Business Banking Services rests predominantly in the activities that they provide for SMEs.

  5.2  The level of service provided to merchants by an acquirer varies considerably from a simple pass through of data to a full turn key operation including the rental of the physical equipment through which payments are received—ie the Point-of-Sale terminals.

  5.3  The services provided by both the scheme and the acquirers are central to the success of new e-commerce ventures, as they are the most practical payment method with 95 per cent of all purchases on the internet being made with payment cards.

  5.4  Several card issuers also offer commercial cards to SMEs—such as "Business Cards" for employee expenses and "Purchasing Cards" for business-to-business transactions. These are relatively new products that help businesses to use efficient methods of payment with enhanced management information and audit trails. These are now in use by many Government departments, adding to the efficiency of those departments.

  5.5  The benefits are clear. In only one example, the National Audit Office has indicated that such cards will deliver efficiency savings of £50-75 million to the Treasury alone.


  6.1  The Market for Personal Banking Services in terms of the schemes is in the card issuing market.

  6.2  Competition has developed considerably over the last 10 years, with traditional High-Street banks consistently losing market share to new entrants. Since 1996 significant additional market share has been gained by new entrants including Goldfish (a joint-venture between Centrica and HFC Bank), Tesco, Egg, Alliance and Leicester and the US-owned MBNA International Bank, Morgan Stanley Dean Witter, People's Bank and Capital One.

  6.3    This has delivered demonstrable benefits to cardholders with reduced APRs and fees being seen in response to the increased competitive pressures.

  6.4  Information about the benefits of such a myriad of cards is readily available in the pages of financial publications and the national press, resulting in growth in the phenomenon of card surfing, whereby cardholders readily switch debt between cards to minimise repayments and the interest that accrues to outstanding balances.

  6.5  Issuers increasingly market individual card products to consumers on the basis of the additional benefits available—such as cash back or free insurance. Consumers are well informed that if a holiday, for example, is paid for by certain credit cards, they will also receive insurance.

  6.6  Point of sale transactions using cards remains the cheapest method of making payments abroad and, similarly, most holidaymakers are aware that withdrawing cash using payment card (credit, debit or ATM) whilst abroad is one of the cheapest and safest methods of getting local currency.

  6.7  This level of knowledge is indicative of a market characterised by sophisticated consumer understanding.


  7.1  Central to MEPUK's concerns about the proposed introduction of a licensing regime for payment systems is the contention that card schemes currently deliver a popular and innovative range of products and that the development of these products would be jeopardised by the introduction of an additional, inappropriate, layer of regulation.

  7.2  Through their global interoperability, payment cards provide a unique universal currency, which delivers a secure, flexible and cheap method of payment for the benefit of merchants and cardholders alike. Further as a prime player in this market, substantial benefits accrue to UK plc.

  7.3  Under the existing competition framework, the corrective measures available to the Government are sufficient to deal with any suspected anti-competitive behaviour. Furthermore, the desire of the scheme to proactively ensure compliance within this framework is reflected in the notifications to both the OFT and the European Commission.

  7.4  The public interest case for the establishment of a new licensing regime has not been made. It remains unclear both what such a regime would be expected to achieve and through what means it would seek to do so.

31 July 2000

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