EU lawmakers agreed to impose caps on card payments in Europe following a vote in Parliament on Tuesday (10 March), applying to cross-border and domestic card-based payments.
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.
The European Parliament voted to cap interchange fees at 0.2% of transaction value for debit cards and 0.3% for credit cards.
Member states have 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.
Meanwhile, although the domestic interchange fee on debit cards is capped at 0.2%, this may represent a weighted average, the annual transaction value of all domestic debit card transactions, rather than a cap on each individual transaction.
“This legislation, combined with the upcoming Payment Services Directive, will establish a level playing field for payments across Europe. It should enhance fee transparency, stimulate competition and enable both retailers and users to choose the card schemes that offer them the best terms,” said Spanish MEP Pablo Zalba Bidegain (European People’s Party), who steered the proposal through Parliament with ease, carrying the law by 621 votes to 26, with 29 abstentions.
Exemptions: Commercial cards and “three party” schemes
The new rules will 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 to pay business expenses will also be exempt.
After three years, the rules will also apply to three-party card schemes that licence other parties to issue cards and thus circumvent the law by effectively operating as four-party ones.
The capping rules do not affect ATM cash withdrawals.
Competition Commissioner Margrethe Vestager said: "For too long, uncompetitive and hidden bank interchange fees have increased costs of merchants and consumers.Today's vote has brought us another step closer to putting an end to this. This legislation will put a cap on interchange fees, make them more transparent and remove a hurdle to rolling out innovative payment technologies. It is good for consumers, good for business and good for innovation and growth in Europe. As cards are the most widely used means of online payment, this Regulation is also an important building block to complete the European Digital Single Market."
Commissioner for Financial Stability, Financial Services and Capital Markets Union, Jonathan Hill said: "I welcome this vote which will bring transparency and legal certainty for the credit card market. It also paves the way for more innovation and competition in the field of online and mobile payments. Crucially, merchants will see the costs of payments fall, which should in turn drive down prices for consumers."
“MasterCard trusts that this agreement will provide the necessary legal certainty for all players. MasterCard looks forward to working in partnership with the European institutions and other stakeholders to continue building a world beyond cash for the benefit of governments, business and Europeans everywhere,” the card company said in a statement.
“At the same time, whilst efforts have been made by policy makers towards ensuring equal treatment of all market players, we remain concerned about the negative impact this may have on cardholders due to the Regulation’s one-size-fits-all approach and by the possible exclusion of some card schemes for another 3 years. We therefore encourage all Member States to respect the principle of equal treatment by ensuring that all schemes remain included in the Regulation’s scope, in particular where flexibility is provided for,” the statement concluded.
"I strongly welcome the capping of these fees, which could save consumers and businesses at least €6 billion annually and help to provide a vital level playing field across the European Union. For too long, shoppers and businesses have had no choice but to accept opaque, unreasonably high fees charged by banks and card providers," said Dutch MEP Sophie In't Veld MEP, 1st Vice President of the ALDE Group and shadow rapporteur for the legislation.
- Coming days: Rules will need to be officially endorsed by the Council of Ministers before they can take effect, six months after the legislation enters into force.