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.