Commission to go ahead with cap on card fees

Fees for card payments will be capped

The European Commission will table proposals next week (24 July) aimed at reducing the cost of using payment and credit cards for consumers. The draft regulation, seen by EURACTIV, will set new fee limits at 0.2% and 0.3% of the transaction value for debit cards and credit cards respectively.

The Commission is set to publish its update to the Payment Services Directive next Wednesday (24 July), with a separate regulation on multilateral interchange fees (MIFs) to be published simultaneously.

Speaking to French journalists in Brussels yesterday (18 July), Barnier said it was “coherent” to cap interchange fees in the interest of consumers, indicating that such fees simply did not exist in the United States and Denmark, and that these countries were “doing quite well” without them.

"If you allow me, inter-exchange fees – they are a cash cow” for card companies, Barnier said.

MIFs are charges paid by a retailer to a cardholder’s bank as part of an electronic payment card transaction, whether through a debit or a credit card. Nominally, they are designed to share the cost of processing payment card transactions between buyers and sellers.

Retailers pay the fee but usually incorporate a hidden charge within their goods for its cost. They do not like the fee and would like to see it capped, limited or even banned. Many politicians have argued that if this happens, consumers would benefit from lower prices for goods as a result.

Barnier said legislation on card fees had become necessary because of  judgments by the European Court of Justice, which have placed limits on the fees applied by Visa Europe.

“We apply the judgments of the European Court of Justice, strictly, so there are no surprises,” Barnier stressed.

"We will set limits, we won’t scrap them,” he further underlined in comments aimed at card companies who claim the fees are necessary to cover costs, including those related to the security of transactions.

Regulation will codify court proceedings

The Commission has conducted a long series of antitrust investigations in the payment card market, specifically targeting MIFs.

Proceedings were opened against Visa Europe in March 2008, concerning MIFs for consumer debit and credit card transactions.

A commitment by Visa Europe to cap its debit card MIFs at 0.20% was made binding in December 2010. Proceedings relating to consumer credit MIFs continued, until Visa committed to cap its inter-bank credit charges at 0.3% of a transaction's value in May 2013, eliciting a positive response from the EU executive.

Such a cap may thus become legally binding in the new MIF regulation to be adopted next week.

Meanwhile the Commission has also been investigating MasterCard, and recently opened new proceedings investigating its inter-bank fees and cross-border acquisitions.

The French commissioner said that the upcoming MIF regulation would codify current agreements with Visa Europe and make them applicable to all card providers, so creating a level playing field for potential new market entrants.

An EU official explained that the MIF model was "opaque" by nature because it covered costs which were not specified but rather applied across the board to cover the whole range of transaction costs between the retailer and buyer. "The MIF in itself is not necessarily illegitimate," the official said. "Simply, it is a system, which, by its very construction is opaque because you decide you're not going to look at your costs which are considered to be equal by definition."

A copy of the MIF regulation seen by EURACTIV confirmed that this is the case, and that the 0.3% and and 0.2% of transaction cap will be applied to credit and debit transactions respectively.

Press reports earlier this week erroneously suggested that fees for both transactions would be capped at 0.2%.

“Courts and regulators have time and again ruled interchange fees unfair and so plans by the European Commission to finally regulate them would be a very welcome decision. They are a nuisance for consumers as they drive up the price of goods and services and limit competition in the payments market. Bringing down the level of interchange fees should work as a catalyst for the entry of new market players increasing consumers’ access to cheaper and more secure payment means,” according to Johannes Kleis, the head of communciations with European consumer group BEUC.

“History has shown that the biggest losers in the event of interchange regulation are consumers and small businesses. We have seen this happen in Australia, Spain and the US. We continue to work with the European Commission to help it understand the value electronic payments bring to retailers, consumers and issuers and help them understand the potential unintended consequences of proposed legislation,” said a spokesman for MasterCard.

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.

The European Commission, meanwhile, has conducted a series of antitrust investigations in the payment card market, targeting in particular multilateral interchange fees (MIFs).

A commitment by the Visa card company to cap its debit card MIFs at 0.2% was made legally-binding in December 2010. But proceedings relating to consumer credit MIFs continued until the company committed to cap its inter-bank credit charges at 0.3% of the value of the transaction in May 2013. Such a cap may thus become legally binding later this year.

The Commission has also been investigating MasterCard, and recently opened new proceedings investigating its inter-bank fees and cross-border acquiring.

>> Read our LinksDossier: Payment Services Directive: The new payments landscape

  • 24th July 2013: European Commission to put forward legislative proposal for a Payment Services Directive update (PSD II), accompanied by impact assessment report and regulation on multilateral interchange fees.

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