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April 4, 2008

European banks in talks for new payments network

The European Commission (EC) has said talks are currently being held with several major European banks regarding a new payments card network that could rival Visa and MasterCard.According to the Financial Times, Germanys Commerzbank and Deutsche Bank alongside French banks Socit Gnrale and BNP Paribas were preparing to decide on launching a new card network over the coming months.We have had a series of contacts with banks and other interested parties about payments cards, said commission spokesman for competition matters Jonathan Todd

By Verdict Staff

The European Commission (EC) has said talks are currently being held with several major European banks regarding a new payments card network that could rival Visa and MasterCard.
According to the Financial Times, Germany’s Commerzbank and Deutsche Bank alongside French banks Société Générale and BNP Paribas were preparing to decide on launching a new card network over the coming months.
“We have had a series of contacts with banks and other interested parties about payments cards,” said commission spokesman for competition matters Jonathan Todd. “Members of this project have approached the commission, but they are not the only ones.”
The tentative name for the scheme is Monnet – after Jean Monnet, one of the key architects of the European Union. The enthusiasm of the German and French banks to go ahead with this initiative depends on how high the commission would accept interchange fees to be set, according to the Financial Times. Should no clear solution be agreed upon by the both banks and regulators, the banks will in all likelihood continue to use the existing Visa and MasterCard networks.

Early stages

A spokesperson at Commerzbank confirmed to CI that the talks are taking place at a high level, but reiterated they were still very confidential and at a very early stage.

The proposed card scheme is expected to be based on the same interchange model as the Visa and MasterCard networks in Europe, but both the EC and the European Central Bank (ECB) as well as national central banks must approve the proposal before banks in other European countries can join.
Interest in a pan-European payments scheme has grown significantly in recent months, as both MasterCard and Visa have come under increased pressure from the EC regarding the level of interchange fees charged when processing card payments. Brussels has always been keen for the implementation of a new payments scheme to rival MasterCard and Visa, believing this would lower costs for the consumer.
In December last year, the EC ruled the multilateral interchange fees charged by MasterCard for cross-border transactions made with MasterCard and Maestro debit and credit cards were illegal. The EC has also undertaken a new investigation into the interchange fees charged by Visa for cross-border card transactions, following the expiry of a 2002 antitrust agreement between the card company and the EU’s Competition Commission.
The recent stock exchange listings of MasterCard and most recently Visa has also given banks a cause for concern, as they fear the new arrangements and structures of these institutions will dilute their own bargaining power with them.
With the introduction of the Single European Payments Area this year in 31 countries, it is hoped that by 2009 the cost of debit transactions will be uniform across all the markets in question. Should the major German and French banks in question get behind a new payments network initiative, it could quickly gain momentum as these countries alone account for around 30 percent of SEPA transactions.

Challenges

News of the most recent pan-European initiative follows on from reports last year that a group of Europe’s largest banks – including Société Générale, Deutsche Bank, Dresdner Bank, Commerzbank, Unicredito, ABN Amro, ING and Rabobank – were holding discussions regarding a similar scheme to compete with the current payments duopoly in Europe.

Sanjay Sakhrani, an equity analyst at Keefe, Bruyette & Woods, told CI that the plan, although supported by Europe’s regulators, may have difficulty getting off the ground due to infrastructural issues.
“We note that Visa Europe has faced challenges in developing a product for SEPA and decided to remain non-for-profit,” Sakhrani said. “MasterCard made the most advances in developing a compliant product and according to management, it took it many years to develop such a product, and almost 50 percent of the cards in the region carry its [or Maestro] brand.
“We think it will be very hard for the banks to create a compliant product by the stated goal of issuers having a SEPA-compliant product available by January 2008, and the end of 2010 when there should be no non-SEPA cards in operation.”

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