EU rules might hamper card payments


Despite the EU’s official determination to reduce “inefficient cash payments” across Europe, EU rules allow extra charges to be applied to card payments, indirectly supporting the use of cash.

As online booking becomes increasingly widespread, so does the payment of extra fees for the use of credit or debit cards. 

But in some cases, the surcharge is applied not on transactions but on items or tickets purchased. The low-cost Irish airline Ryanair is a frontrunner in this regard, even applying a per-ticket surcharge. This means that if a consumer buys three tickets, then he or she will pay a surcharge three times for using the card, even if the purchase was carried out in a single transaction.

The card payment surcharging model is also applied to offline payments. For example, in countries where the legislation allows such practices, furniture retailer Ikea charges clients an extra fee for using payment cards.

Apart from the harm to consumers, the practice has anti-competitive consequences for payment card companies. In the case of Ryanair, the company allows free-of-charge payments if the customer uses a Visa Electron card thanks to an agreement with the card company. This means payments to the company via Visa Electron amounted to over 25% of the total in 2007 and 2008, according to a Ryanair spokesperson.

In the case of Ikea, the Swedish company applies no fees to payments carried out with cash or with its own credit card, while it charges other cards’ clients with an extra fee in those countries where it is allowed to do so.

Among those countries are the UK, Ireland, Germany and Spain, which exploit a loophole in the Payment Services Directive, the new legislation on electronic payments adopted at EU level in November 2007. The directive is in fact vague on surcharging, allowing states to decide whether to ban or allow it.

Brussels pushed for the introduction of a common EU policy on surcharging, but opposition from member states was strong and eventually prevailed. The result is somewhat paradoxical if one takes into account that one of the PSD’s main objectives was to decrease “inefficient” cash payments.

Internal Market Charlie McCreevy's spokesperson said: "The PSD is surcharging neutral, meaning that each member states can apply its own rule. This has been one of the compromise solutions necessary to pass the directive through the legislative process."

Visa is concerned by the vagueness of the directive regarding surcharges and is campaigning for "no discrimination between means of payments," according to a Brussels-based official. "Only one payment subject to surcharge affects the client interest in using a card in other occasions," added the official.

Ryanair spokesperson commented: "Our prices are fully transparent. We apply surcharges on cards payments to cover our administrative costs and to guarantee the safety of payments."

After months of fierce debate, the Payment Services Directive (PSD) was adopted by the EU Council of Ministers in March 2007. The European Parliament's green light came a month later, and it was published in the EU Official Journal on 13 November 2007 (EURACTIV 25/04/07). The definitive entry into force of the new set of rules is foreseen for November 2009, by which date member states are supposed to have finished transposing the directive into national law.

The PSD seeks to create a true European market for payments while improving national business environments at the same time, offering consumers more and cheaper services.

One of the priorities of the directive is to drop the usage of "inefficient cash payments," as indicated by the Commission on many occasions. Brussels believes mass migration to electronic transactions would save European society costs amounting to 3% of GDP (see Links Dossier).

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