Europe's antitrust chief warned credit card companies and banks on Wednesday that she will start legal action against them for what she sees as overcharging consumers and businesses for using the cards.
A preliminary report by the European Commission found that consumers in some countries paid as much as double in credit card fees compared to other countries, and businesses paid up to six times as much depending on where they functioned.
"I am fed up when parties in the market are not behaving like they should be. I am highly aware, especially in this sector ... the consumer is paying far too much," Competition Commissioner Neelie Kroes told reporters.
"There will be absolutely action from our side."
Much of the problem comes from the development of payment card markets that evolved along national lines and are still fragmented, she said, adding companies such as Mastercard and Visa "appear to be abusing the situation at present". But she also criticised banks that issue credit cards, albeit under the Visa and Mastercard brands, saying the big global players make some 25 percent of their profits from card-related services. "Banks are making too much profit and we will face them with the consequences on payment cards," Kroes said.
A total of 23 billion card payments are made each year in the 25-country European Union for purchases that amount to 1.35 trillion euros ($1.64 trillion), and credit card companies, the report says, make high and consistent profits.
Visa said in reaction to the report that differences in fees across the EU depended on a number of variables.
"Existing differentials between member states reflect numerous factors including levels of market maturity, market size and the nature of different products in different countries," it said in a statement.
No one at Mastercard was available for immediate comment. The report is part of a wider EU investigation into competition in the banking retail sector and is part of the executive Commission's work to create a single internal market for financial services in the bloc.
There will now be 10 weeks of consultation with interested parties, including banks and credit card companies, and Kroes will finish that process before taking action.
One of the aims of the report was also to help establish a Single Euro Payment Area in the eurozone to let Europeans pay as securely, quickly, and efficiently abroad as they do at home. But Kroes went further, saying there should be a European card system that would compete with Visa and Mastercard.
The idea is that national credit card networks, such as Banksys in Belgium, Carte Bleu in France and en-cash of Germany, would communicate through standardised technology. This is up for discussion with all parties including Visa and Mastercard.
The report said businesses suffered as they were charged by credit card companies for each customer purchase, leading to higher prices.
Also, banks in eight EU nations created joint marketing ventures offering retailers the same prices to accept purchases by card, instead of competing against each other, something Kroes labelled an "effective monopoly". Visa and Mastercard have already come against the Commission over their fees, which the highest European anti-trust authority said broke competition rules.
In 2002, Visa, the world's largest credit card association, agreed to cut fees after the Commission investigated its business practices. Mastercard is embroiled in a similar case.
The retail banking inquiry is part of the Commission's drive to prise open cross-border markets, increase competition and liberalise sectors.
After a similar investigation in the energy sector, Kroes warned gas and electricity suppliers they would face an antitrust crackdown because they were slow to open the market.