More than half of retailers will not pass on capped card fee savings to customers

Interchange fees have been the subject of hot debate. [EP Technology/Flickr]

More than half of high value retailers will not pass on savings from the proposed EU cap on interbank fees on card payments to their customers, and instead invest the money into their business, according to new research.

The payments, known as multilateral interchange fees or MIFs, have long been a subject of heated debate. The fees are charges during transactions between the merchant and buyer’s banks.

Research by Ipsos MORI, commissioned by MasterCard, found that 59% of merchants in the United Kingdom, France, Germany, Spain, Italy and Poland would use the funds for their companies.

15% of the 901 managers and owners interviewed said they would pass the savings on to customers. Spanish merchants are the most likely to do so (20%), followed by Italy (19%), Poland (17%), the UK (16%) and France (8%).

Those surveyed were chosen from sectors likely to have a high volume and value of credit card transactions, including airline ticket sales, car rental agencies, restaurants, travel agents, hotels and resorts.

According to the European Commission, interbank fees for card payments cost European retailers more than €10 billion every year. These costs are often handed to consumers, which lead to higher prices. The increasing importance of e-commerce has also sharpened policymakers appetite to regulate the charges.

In July 2013, the European Commission proposed the revised Payment Services Directive, capping the fees at 0.3% of transaction value for credit cards and at 0.3% for credit cards.

In April, MEPs amended the proposal to include business cards, which have higher fees than consumer cards. MasterCard has argued this make cards too expensive for small businesses.

The amended law will be passed on to the next European Parliament. The current Parliament has claimed that the new MEPs will “not decide to restart the project from scratch and will continue the work of the current parliament.”

Should the proposed legislation come into effect, half of high value retailers across the six countries said that they would continue to accept all payment methods while 31% said they would stop accepting the most expensive payment cards.

MasterCard has criticised the draft legislation because it includes themselves and Visa but not all payment cards. In particular, the company wants rivals American Express and Diners Club to be covered by the legislation.

They are not covered to the same extent as Visa and MasterCard because they are three party card schemes. That 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 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 survey said 55% of retailers interviewed by telephone indicated they would support the cap only if it included all card networks. 34% said they would support the draft regulation in its current form.

“The draft regulation should be amended to cover implicit interchange fees operated by three party schemes. This can be achieved fairly simply through the introduction of rules on accounting separation already applied in other areas of EU legislation, such as telecommunications or energy,” said Javier Perez, president of MasterCard Europe.

Knowledge of interchange rates is fairly high among the retailers. More than three in four (79%) high value retailers report that they know “a lot” or “a fair amount” about the different fees charged for different payment methods.

A multilateral interchange fee (MIF) is an interbank payment made for each transaction carried out with a consumer card.

In a long legal battle waged against what are seen as unfair practices of payment cards groups, the European Commission fined Visa (which is currently under a new investigation) and took on MasterCard for its MIFs. In May 2012, EU judges upheld the executive's move against MasterCard.

In an attempt to turn the tribunal's decision into law, the European Commission proposed in July 2013 new legislation capping MIFs at 0.2% of the transaction value for debit card payments, and at 0.3% for credit cards.

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