An initial deal on capping fees charged for paying with debit or credit cards across the 28-nation European Union was reached yesterday (17 December) by the Council and parliament’s economic committee.
“This legislation is good for consumers, good for business, and good for Europe,” Competition Commissioner Margrethe Vestager said.
“It will lead to lower prices and visibility of costs for consumers. It reduces a ‘tax’ levied on business by banks in the form of interchange fees, and releases the brakes that have so far held back innovation.”
On 24 July 2013, the European Commission proposed a revised Payments Services Directive (PSD2) and submitted a proposal for regulation on interchange fees for card-based payment transactions.
The payments, known as multilateral interchange fees or MIFs, are charges during transactions between the merchant and buyer’s banks. Member states can lower the charge ceiling if they wish.
In April, the European Parliament voted on amendments to the legislation, which caps interchange fees at 0.2% of transaction value for debit cards and 0.3% for credit cards.
Those amendments have broadly now been accepted in trilogue, and are expected to receive final agreement by the member states in the Council early in the new year.
Italian presidency prioritised card caps
Over the summer (7 July) an alliance of consumer and business organisations called on the Italian Presidency of the EU and the new European Parliament to make legislation capping payment card fees its “absolute priority.”
The European Payment Users Alliance backed MEP’s changes to include business cards and third-party card schemes in the scope of the legislation. Members of the alliance include FuelsEurope, UEAPME (European Association of Craft, Small and Medium-sized Enterprises), EuroCommerce, the European Modern Restaurant Association, the European Retail Round Table and BEUC, the European Consumers Organisation.
A three party card scheme, such as American Express, means the issuer of the card to the consumer and the acquirer, who has the relationship with the merchant, is the same body.
A four party scheme such as Visa or MasterCard, has a separate issuer and acquirer. The acquirer pays an issuer an interchange fee, and the merchant pays the acquirer a service fee.
The EU Council of Ministers, representing the EU member states, adopted a general approach on the interchange regulation in November. The Council drafted two key compromises from the Parliament’s version.
First, it gave member states the discretion to exclude three party schemes in certain circumstances – for example when they license others to issue their cards – rather than making their inclusion compulsory.
Three-party schemes given some grace
Secondly, the domestic interchange fee on debit cards would still be capped at 0.2%, but under the Council compromise, could represent a weighted average, the annual transaction value of all domestic debit card transactions, rather than a cap on each individual transaction.
The Council and Parliament have now agreed these changes, with some further amendments.
Parliament’s negotiators made sure that the system of applying the cap on a weighted average basis will apply for five years only.
Thereafter, interchange fees for domestic transactions will be subject to a simpler, more transparent regime where the cap for a domestic transaction is 0.2% of the transaction value, or set at a fixed fee of at most five cents per transaction.
The negotiators also agreed that the new rules should not apply to so-called three-party card schemes such as Diners and American Express (involving only one bank) provided the card is both issued and processed within the same scheme. Commercial cards used only for business expenses would also be exempt from the new rules.
The rules will apply to three-party card schemes that licence other parties to issue cards and thereby operate as four-party schemes, in order to avoid unfair competition in the long run.
But such schemes will only be covered by the new rules in three years’ time, a move that annoyed four-party card schemes.
“Allowing three-party schemes to licence their cards to card issuers for a period of three years threatens to seriously distort the marketplace in favour of schemes that are significantly more expensive for retailers to accept and which operate with fees that closely replicate interchange,” Visa Europe said in a statement.
"Thanks to the adoption of this Regulation, we have taken a big step towards a Single Market in card payments and towards a new generation of fast, convenient and user-friendly payment technologies,” said Finance Commissioner Jonathan Hill.
“It will cut the cost of payments substantially for merchants, especially SMEs and that in turn should lead to a fall in consumer prices. And it offers banks a stable and sustainable business," said Hill.
“We will study the details of this new legislation once it becomes available and hope that it enables everyone in Europe to continue to benefit from MasterCard’s world leading, innovative and secure electronic payments, while continuing to enable the displacement of cash for the benefit of governments, business and Europeans everywhere,” said MasterCard in a statement.
Visa Europe welcomed the agreement in a statement saying that “the industry we will be able to move forward with clarity on the future position for all players.”
However the statement added: “We continue to have serious concerns that the regulation will have unintended consequences, particularly for consumers, and that it could stifle future innovation.”
“We welcome the decision to cap interchange fees. Across Europe, banks were guaranteed steady income because of their clients’ card transactions,” said Monique Goyens, the director-general of BEUC, the European consumer organisation.
“High MIFs have been a serious hindrance to building a single market for payments. Last night’s agreement between the European Parliament and EU governments lifts this stumbling block. A cap on credit and debit card payments will make transactions significantly cheaper. We now expect retailers to stick to their promises to pass on cost savings to consumers by lowering product prices,” said Goyens.
The Payment Services Directive (PSD) was adopted by the EU in 2007, but an explosion in e-commerce through the internet and the ownership and use of smartphones has taken place since then.
In July 2013, the European Commission tabled proposals aimed at reducing the cost of using payment cards for consumers, setting new fee limits at 0.2% and 0.3% of the transaction value for debit cards and credit cards respectively.
The new Payment Services Directive, with a separate regulation on multilateral interchange fees (MIFs), could see €6 billion annual savings for retailers, according to the proposal.
- European Commission: Proposal for a Directive on Payment Services (24 July 2013)
- European Commission: Proposal for a regulation on multilateral interchange fees on card-based transactions (24 July 2013)
Business & Industry
- Google Wallet http://www.google.com/wallet/
- UK Office of Fair Trading:MasterCard interchange fees
- PSE Consulting:The Uncomfortable Consequences of a Universal Multi-Lateral Interchange Fee (MIF) for Europe
- Visa Europe:Explaining differing European MSC levels
- MasterCard Europe:Announcement on MIFs