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
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
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
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
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
3. SCHEME OPERATION
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
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 3The 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 Schemeagain less
the Interchange Fee. The Issuer and Acquirer are each charged
a fee by the Scheme for this clearing and settlement service.
Step 4The 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
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 cardstoday
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.
3.5.1 Merchants (retailers), as entities
that accept payment cards, are one of the end-users of payment
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
transactionsmail order, telephone order and e-commerce
transactionsgreatly 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.
3.6.1 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
3.6.4 Cardholders are generally protected
against the fraudulent use of their card(s) provided they have
not facilitated the fraud.
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
the recruitment of millions of merchants
by the acquirers;
a global authorisation system for
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. MONEY TRANSMISSION,
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
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 schemesnot to mention other forms of paymentas
individuals and merchants are happy to belong to more than one
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 systemsincluding, for example, MasterCard/Eurocard,
Visa, American Express, JCB and Diner's Clubhave 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
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
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
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 schemessuch
as beenzfor 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
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
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
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
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
4.6 Other International ConsiderationsScheme
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
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
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
4.7 Other International ConsiderationsSettlement
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 institutionsor 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
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 liabilityit 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
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 UKas
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 usersie
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. THE MARKET
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 receivedie
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
5.4 Several card issuers also offer commercial
cards to SMEssuch 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
6. THE MARKET
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
availablesuch 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