How Card Regulation is Killing Competition

If you think there isn’t enough competition in the payments industry, just wait a few years – there will be a lot less in the U.S. and European Union. Before I explain why let’s take a survey of the state of competition. No, the payments card industry is not a perfectly competitive industry that would warm the cockles of your micro-econ college professor’s heart. But then, what is?

In the U.S. we have Visa, MasterCard, American Express, and Discover, not to mention PayPal, several PIN debit networks, and a lot of startups, all slugging it out. In the EU the state of competition varies by country, but Visa, MasterCard, American Express and often some domestic systems are competing. Visa (either International or its European doppelganger) is the big dog in a lot of places. But Visa has a lot more competition than the leading player does in a lot of industries. And considering that payment card schemes have enormous network effects and scale economies, if anything, there’s a surprising amount of competition.

There’s been a lot of talk about even more competition, and challenges to the established players, in the U.S. and EU.

The Europeans have never been very happy that Visa and MasterCard – both perceived as U.S. companies (yes, this is odd given that Visa Europe is owned by European banks, but there you have it) – are the leading pan-European players. Then they got very worried when the efforts to create the Single Euro