March 26 (Bloomberg) -- European Union antitrust regulators opened a probe of fees set by Visa Europe Ltd., the regional franchise of the world's biggest credit-card network, three months after ruling MasterCard Inc.'s similar fee is illegal.

The European Commission in Brussels said in a statement today it is examining so-called interchange fees, paid between banks on each transaction, after a 2002 settlement expired at the end of last year. Visa Europe said it is seeking a new settlement.

EU Competition Commissioner Neelie Kroes has likened the fee to a tax driving up prices on all consumers, and ordered MasterCard to revise how it sets interchange Dec. 19. The Visa case broadens Kroes's effort to drive down the fee, which may cost billions of euros of revenue for the banks that issue cards.

``The interchange fee is probably set at well over what it actually costs the process and the gap has been a substantial source of revenue for the banks,'' Derek Chambers, a banks analyst at Standard & Poor's Equity Research Ltd. in London, said in a telephone interview. ``If it is lowered or removed it would free up competition and that could mean lower fees for banks potentially.''

The commission also is examining a Visa Europe practice of requiring stores to take any Visa-branded card. ``Potentially banks can favor those cards that have higher fees and merchants don't have any choice about accepting them,'' Jonathan Todd, a spokesman, said to reporters today in Brussels.

`Procedural Step'

Visa Europe said in a statement it was expecting the investigation as ``a standard procedural step.'' The London- based company -- which separated last year from publicly traded Visa Inc. -- said it is continuing talks with the commission toward a new settlement.

In 2002, Visa Europe resolved an EU complaint by agreeing to cut interchange over time and cap it based on costs. The commission concluded then that the five-year agreement would help payment cards work to the benefit of consumers.

``The market is evolving over time,'' Todd said today. After conducting an industrywide probe, the commission said in a January 2007 report it found ``evidence that interchange fees are not intrinsic to the operation of card payment systems,'' which work without the fee in some countries.

``Interchange is a mechanism for ensuring the maximum benefit to all who use card payment systems,'' which are more efficient than cash or checks, Visa Europe said today. ``A substantial reduction in interchange would see a disproportionate shift in the costs of the card payments system from retailers to consumers.''

Interchange Fees

Merchants argue that interchange fees inflate prices for shoppers by as much as 13.5 billion euros ($21.2 billion) a year in the 27-nation EU, according to the European Retail Round Table, a lobby group for 14 retailers.

Since stores typically charge the same for cash or cards, the cost is borne by all shoppers, not just those who make the 23 billion card payments worth more than 1.35 trillion euros in the region each year, according to the commission.

While Visa and MasterCard set guidelines for interchange, the money goes to banks that issue credit cards. Europe's biggest card issuers include Royal Bank of Scotland Group Plc and Barclays Plc of the U.K., as well as Credit Agricole SA and Credit Industriel & Commercial, a unit of Credit Mutuel.

As in the MasterCard case in December, the probe of Visa Europe centers on cross-border transactions, because national authorities have jurisdiction over domestic business. Still, the commission has said that national practices should follow the same principles.

Six Months

The commission gave MasterCard six months to change how it devises the fee, or face fines. MasterCard has appealed the ruling to a European court in Luxembourg. The commission is still in talks with the company, Todd said.

``The interchange fee system operated by Visa Europe constitutes the same infringements of competition law which the commission already ruled against in the MasterCard case,'' the retailing industry group EuroCommerce said in a statement today. ``We therefore trust that the commission's investigation will lead to the same outcome.''

To contact the reporter on this story: John Rega in Brussels at jrega@bloomberg.net.

Last Updated: March 26, 2008 12:07 EDT