This article is part of our special report Payments services directive II.
SPECIAL REPORT / Forthcoming European Commission proposals aimed at reducing charges for payment cards have ignited a debate over whether consumers will benefit, based on previous experiences in Spain and France.
The Commission is set to publish its update to the Payment Services Directive (PSD II) this month, with a separate regulation on multilateral interchange fees (MIFs) to be published simultaneously.
The draft proposal, seen by EURACTIV, states that the new regulation will encourage “downward convergence of costs and prices for payments services users”, which is almost certain to mean stricter limits placed on interchange fees.
MIFs are charges paid by a retailer’s bank for processing a payment card transaction. Retailers usually incorporate the fee as a hidden cost within the good they sell, leading some consumer and retailer organisations to call for their elimination.
But whether consumers will benefit in the end remains bitterly contested.
“Whether the price of the goods will decrease when MIFs are lowered depends on retailers,” said Monique Goyens, director-general of European consumer group BEUC.
“Considering the competitive market situation they [retailers] face, a downward pressure on prices is the expected outcome,” Goyens added.
In considering reductions to MIF, “nobody has seriously taken into consideration the consumers’ interests, who risk being the final loser here,” said Pascual Fernández Martínez, professor of economics at Universidad Rey Juan Carlos in Madrid.
Martínez has researched the position in Spain where interchange fees were reduced by more than 57% between 2006 to 2010.
“I must come to the conclusion that consumers did not benefit at all from this reduction. Retailers have. Undoubtedly. This reduction saved them almost €2.75 billion over the five-year period,” he said.
Martínez said lowering the MIF led banks to lose fees, which they sought to regain by increasing their charges to consumers. “The consumer ended up paying for the retailers’ savings,” he said.
Ruth Milligan, the senior advisor on payment systems with EuroCommerce, the European traders federation, contends these claims do not weigh up. She said that an increase in sales resulting from the lower price means that banks do not experience losses.
“The price of the transactions may go down, but with more overall transactions, they [banks] do not experience a difference,” Milligan said.
Consumer group not convinced of benefits
But Goyens points to the example of France, where interchange fees were also lowered. “Here [in France] a reduction of the interchange fees did not result in increased card holder fees,” she said.
The variety of consumer-group opinions on the issue adds to the sense of confusion over what the real impact of MIF reduction will be, however.
The Italian consumer group Movimento Difesa del Cittadino stands in opposition to BEUC’s point of view. “The reduction in interchange [in Spain] has clearly harmed consumers by raising cardholder fees and reducing card benefits,” said Antonio Longo, the group’s chairman.
Back to cash
Meanwhile, MasterCard claim that lower interchange fees would lead to consumer cost rises, which they believe would drive consumers to use more cash.
“Ultimately, it would be bad for the European economy at a time when spending needs to be encouraged to stimulate recovery and where governments are trying to reduce the black economy in order to increase their revenues for budget purposes,” said MasterCard Europe spokesman Jason lane.
If there is confusion over the impact of the forthcoming new rules on consumers, then the updated PSDII should at least introduce measures to ensure greater consumer involvement in monitoring the effects of the new rules.
“The protection of consumer interests” is listed as a specific objective of PSDII in the preamble, and changes to the governance of the Single European Payments Area – including the establishment of a new steering committee with consumer representatives – seeks to “empower all stakeholders to take a more active role in the conception and realisation of payments governance”.
That should theoretically give consumer groups more of a voice in the policymaking process.
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 the meantime the European Commission has conducted a long 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 0.20% 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.
Meanwhile 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
- July 2013: European Commission expected to put forward legislative proposal for a Payment Services Directive update (PSD II), accompanied by impact assessment report.
- European Parliament: Webpage with amendments to PSD (24 April 2007)
- European Commission: Green Paper – Towards an integrated European market for card, internet and mobile payments (11 January 2012)
- European Commission: Frequently Asked Questions (11 January 2012)
- European Commission: Feedback statement from the consultation (27 June 2012)
- European Commission: Replies to the consultation (27 June 2012)
- European Commission:Antitrust: Commission sends Statement of Objections to Visa
- European Commission:Press release on MasterCard's decision to cut MIFs
- European Commission:Single Euro Payments Area (SEPA)
- European Commission:SEPA migration
Business & Industry
- Visa Europe:Explaining differing European MSC levels
- MasterCard Europe: Announcement on MIFs
- European Payments Council: SEPA for Mobile
- European Payments Council: SEPA Vision and Goals
EURACTIV Poland: Konsumenci a ni?sze op?aty interchange