Total hores anuals
LA COL·LECCIÓ DOCUMENTAL
Cardholders have a contractual relationship with the card issuer; the bank whose name is on the card. By charging cardholders for card services, issuing banks can recoup the costs of services provided (e.g. transaction processing and billing) and earn a profit margin. Issuers usually charge several fees to cardholders, such as annual fees and transaction fees. Furthermore, issuers may use payment cards as a way to attract costumers to purchase other products, such as current accounts or loans, which may imply that cardholder fees are not determined in a fully autonomous manner. All these factors imply that different issuing institutions may have different pricing policies and, consequently, a comparison of cardholder fees across countries needs to be undertaken carefully.
This chapter is structured as follows:
• Section 1 examines cardholder fees for credit cards;
• Section 2 examines cardholder fees for debit cards;
• Section 3 analyses the correlation between cardholder and interchange fees; and
• Section 4 concludes.
This chapter compares four types of cardholder fees. These fees are: (1) the fee per card, which is an annual fee given in euros; (2) the card issuance fee, which is a fee charged only when the card is issued, also given in euros; (3) the fee per transaction, which is charged as a percentage or in a (euro) amount per transaction and (4) the account statement and billing information fee, which again is an annual fee (or the equivalent) in euros. These four fees were requested for a “typical cardholder” with standard/classical credit and debit cards, for each year over the period 2000-2004.
Among these four fees, the annual fee per card is the most widely used in the EU-25 Member States. In fact, our sample contains more than 600 positive observations for this fee. This compares with 320 positive observations for the issuance fee, 200 for the account statement and billing information fee and 100 for the fee per transaction. These patterns show the considerable heterogeneity in pricing policies in the card issuing business.
Figure 30
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B.3.1. Credit cards
Fee per card
Looking at the simple average of the fee per card actually paid in 2004 by a typical cardholder holding a classical or standard credit card in 23 Member States182, the results show that Diners Club is the network where cardholders pay the highest fee (57 euros). American Express charges on average 47 euros at EU level. Cardholders in the two most important international networks pay relatively the same amount of fee per card annually: 24 euros for MasterCard and 23 euros for Visa.
The inquiry compared the annual average fee across countries in 2004 between the two major networks. Figure 31 shows the country annual average for 23 EU Member States in 2004.
Figure 31
Country average per credit card, 2004
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 A B C D E F G H I J K L M N O P Q R S T U V W Member States E URO MasterCard Visa Average fee =24 Euro
Source: Commission services retail banking sector inquiry, 2005-2006
The figure shows that the average fee incurred by a typical cardholder for the two main credit card brands is relatively similar within the countries for which data are available. However, the average fee for both networks varies significantly across countries. The averages at EU level for MasterCard and Visa are 23 and 24 euros, although two countries report fees well above the EU average.183
Card issuance fee
The second most widely used fee charged to cardholders in the EU-25 Member States is the card issuance fee184. An analysis of the data shows that this fee is not applied in 5
Member States. In the remaining 20 countries, however, it is interesting to observe that this fee is, on average, higher for cardholders holding credit cards issued in the MasterCard and
182 Two countries were excluded due to data unavailability.
183 A typical “business” cardholder pays 32 euros for a standard/classic card while a typical “consumer”
cardholder pays 19 euros in the MasterCard network. Similarly, a typical “business” cardholder pays 34 euros for a standard/classic card while a typical “consumer” cardholder pays 18 euros in the Visa network.
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Visa networks (14 euros for both) than for those with cards issued by American Express and Diners Club (11 and 5 euros, respectively).
Account statement and billing information fee
The third annual fee analysed is the fee for account statements and billing information. An analysis of the data shows that, in contrast with the first two fees, no account statement and billing information fee is charged in the majority of Member States.
Fee per transaction
Finally, we the fee per transaction was analysed, defined either in euros or as a percentage. In 19 of the 25 countries, respondents claim that they do not charge their cardholders for each transaction they make, irrespective of the network. For the remaining 6 countries, the fee per transaction varies considerably, including between networks185. Where a fee per transaction is charged as a percentage of the transaction volume, this fee varies from 0.1% to 0.7% in the MasterCard network and from 0.5% to 0.7% in the Visa network.
B.3.2. Debit cards
Fee per card
As with the analysis carried out for credit cards, the fees paid by cardholders for debit cards in the EU Member states are compared here for 2004. For the purpose of this analysis, the fees charged for debit cards in the MasterCard, Visa and national debit networks in 20 EU countries are compared.186
Simple comparisons show that, on average, the fee per card is significantly lower for debit than for credit cards. Indeed, the fee per debit card is on average 10 euros for MasterCard (Maestro) (as against 24 euros for credit cards) and 11 euros under the Visa brand (Visa Electron) (as against 23 euros for credit cards).
Another interesting finding emerges from a comparison between the fees in international networks (MasterCard and Visa) and those for national debit networks. The average fee per card in the national schemes amounts to 9 euros (as against 10 and 11 euros for MasterCard and Visa, respectively). On average, the fee per card is significantly lower in national debit schemes than in the international debit networks.
Card issuance fee
An analysis of the data shows that this fee is not applied in most EU Member States. In the remaining 13 countries where this fee is applied, it is interesting to note that cardholders pay an issuance fee of more than 6 euros on average.
Account statement and billing information fee
An analysis of the data shows that no fee for account statements and billing information is charged to cardholders in most Member States.
Fee per transaction
In 17 of the 25 countries, respondents claimed that they do not charge their cardholders for each transaction they make, irrespective of the network. For the remaining 8 countries,
185Only MasterCard and Visa are analysed, due to data unavailability.
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results show that, for those where a transaction fee is charged as a percentage of the transaction volume, the fees vary from 0.1 % to 0.75%.
B.3.3. Correlation between cardholder and interchange fees
As indicated once again by comments received, Industry participants and mainstream economic theory suggest that increasing the level of the interchange fee would, ceteris paribus, raise merchant service charges but would lower cardholder fees through the interchange fee mechanism. That is, in the absence of interchange fees paid by acquirers to issuers, issuers would have to recoup all their costs from cardholders, with the result that cardholder fees are higher if the interchange fee decreases and lower if it increases. Such a hypothesis would be supported if a strong negative correlation could be shown between the average fee per card and the level of interchange fee for a given country and network. In order to test this hypothesis, simple correlation coefficients have been estimated between the country-average fee per card and the level of the interchange fee for the MasterCard and Visa networks over the period 2000-2004. The results are shown in Figure 32.
Figure 32
Correlation coefficients between “fee per card” and “interchange fee”
Years Visa MasterCard
2000 0.11 -0.27 2001 0.15 0.20 2002 0.18 -0.05
2003 -0.13 0.13
2004 0.11 0.05
Source: Commission services retail banking sector inquiry, 2005-2006
Since the correlation coefficient is negative in only three of the ten observations, these results suggest that there is not a strong negative relationship between the level of the cardholder fee and the level of the interchange fee. This pattern is common to both networks and relatively consistent over time. The fact that the low correlation values remained relatively unchanged over time may imply that a possible increase (decrease) in the interchange fee during this period does not seem to have been passed on in lower (higher) cardholder fees.
These simple correlation coefficients do not control for other factors that may affect the fee per card level. However, an econometric estimation controlling for other variables that may affect the fee per card level shows that if the interchange fee increases by 1 Euro only 25 cents are passed on to consumers in lower fees187. While the exact percentage of this pass-through is, of course, difficult to estimate with complete confidence, it seems fair to conclude that this result challenges the hypothesis advanced by some industry participants and the economic literature that an increase in interchange fees is fully offset by reductions in cardholder fees. These results confirm the findings described in the chapter on profitability and may cast doubt on the relevance of the arguments put forward by industry participants and some of the economic literature on two sided markets as regards the role played by the interchange fee in this industry. Indeed, if issuers do not pass return the additional interchange fee revenues back to cardholders this implies that interchange fees are a way to transfer profits to the side of the scheme where they are least likely to be competed away.
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B.3.4. Conclusions
This chapter has examined four kinds of fees charged to credit and debit cardholders: (i) annual fees per card;
(ii) card issuance fees; (iii) fees per transaction; and
(iv) account statement and billing information fees.
Of these fees, annual fees per card are the most important component of cardholder revenues, for both debit and credit cards. The average levels of cardholder fees charged by Visa and MasterCard in a particular Member State tend to be similar, though levels can vary substantially across Member States.
Simple correlation analysis of sector inquiry data during the period 2000 to 2004 suggest that there is no strong negative relationship between the level of the cardholder fee and the level of the interchange fee. This pattern is common to both networks and relatively consistent over time. Moreover, an econometric estimation controlling for other variables that may affect the fee per card level shows that if the interchange fee increases by 1 Euro, typically only 25 cents are passed on to consumers in lower fees.
These findings challenge the hypothesis advanced by some industry participants and some of the economic literature that an increase in interchange fees is fully offset by reductions in cardholder fees. These results are consistent with the findings of the inquiry's analysis on profitability and may cast doubt on the relevance of the arguments put forward by industry participants and the economic literature concerning the role played by the interchange fee in the payment cards industry. Indeed, if issuers do not pass return the additional interchange fee revenues back to cardholders this implies that interchange fees are a way to transfer profits to the side of the scheme where they are least likely to be competed away.
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