UPDATE 1-Visa Europe expects deal with EU on card fees soon

(Adds European Commission reaction)

By Huw Jones

BRUSSELS Jan 20 (Reuters) - Visa Europe expects to reach a deal with European Union competition authorities on its cross-border transaction fees this year, the payment card company said on Tuesday.

Retailers are angry at having to pay the so-called interchange fee on each cross-border credit card transaction and complained to the EU's executive European Commission, saying the fee was a tax on consumption.

EU Competition Commissioner Neelie Kroes has already forced rival MasterCard to reform its interchange fee, a move the payment company is challenging in the bloc's top court.

Visa Europe has been negotiating with Kroes over its cross-border interchange fees on credit cards since the MasterCard decision at the end of 2007.

"We want to agree a model and level of interchange that can be applied consistently across Europe," Visa Europe's CEO Peter Ayliffe told reporters.

Ayliffe said dialogue with Kroes was "very constructive" and he expected a deal to be concluded "as soon as possible" this year. Visa's interchange fee of 0.7 percent remains for now.

The European Commission said it had an on-going antitrust case against Visa and could not prejudge the outcome of that investigation.

"If an infringement of the antitrust rules were found, a settlement decision would be one possible outcome, as would be fines and/or a requirement to change business practices," a Commission spokesman said.

The dispute has cast a shadow over a wider project to create a single euro payment area (SEPA) that aims to allow consumers to use their credit and debit cards to make payments in euros anywhere in the 27-nation bloc from a single bank account.

But banks have been holding back from launching new pan-EU card schemes to rival Visa Europe and MasterCard, saying the dispute over interchange fees makes it hard to determine the right business model.

The European Commission sought to ease concerns by saying an interchange fee could be introduced for an interim period and that schemes don't necessarily have to cover all EU states.

The European Payments Council (EPC), made up of 4,000 or so banks that are investing in SEPA infrastructure, said the planned launch of cross-border direct debits may not go ahead in November as the Commission wants unless there is clarity on fees.

The EPC said the Commission appeared to have accepted a proposal for an 8.8 euro cent fee on cross-border direct debits for two years.

However, EPC Chairman Gerard Hartsink said clarity was needed on whether the 8.8 euro cents fee is acceptable by all national competition watchdogs and on what happens after two years.

"We will at the latest on 31 March take a position if the planned launch date of November 2009 can be maintained or if it has to be postponed because of the lack of clarity of the public sector at European and national level," Hartsink said.

Visa Europe's Ayliffe was "absolutely staggered" the EU appeared to be backtracking on the original broad vision of SEPA but not insisting that all new SEPA cards can work anywhere in the EU.

"They had it right first time. They should go back to how to deliver the original vision," Ayliffe said.

Visa Europe said expenditure using its 361 million credit and debit cards rose 10.3 percent in 2008 to 883 billion euros. One euro in every nine spent in Europe is on a Visa card though two-thirds of payments are still in cash. (Editing by Sharon Lindores)