MEPs secure deal to cap card payment fees

The fees that banks charge retailers to process shoppers’ payments should be capped under uniform rules across in the EU following a deal struck by Economic and Monetary Affairs Committee and Council negotiators on Wednesday (17 December). The cap would apply to both cross-border and domestic card-based payments and should result in lower costs for consumers.

Interchange fees for card-based payments, paid by the merchant's bank to the bank that issued the card, are not transparent and they differ between EU countries, where they are subject in some cases to legislation and in others to decisions by national competition authorities.

These fees are charged by banks belonging to card schemes such as Visa and MasterCard (so-called four-party schemes, involving an issuing bank, a merchant’s bank, the retailer and the card user) which together control the lion’s share of the market. Retailers are charged for every card transaction and add the costs to the prices of the goods or services they offer.

Fees capped

For cross-border debit card transactions the agreed cap is 0.2% of the transaction value. For domestic transactions, member states can apply the cap of 0.2%to the annual weighted average transaction value of all domestic transactions within the card scheme.

Parliament's negotiators made sure that the system of applying the cap on a weighted average basis will apply for five years only. Thereafter, interchange fees for domestic transactions will be subject to a simpler, more transparent regime where the cap for a domestic transaction is 0.2% of the transaction value, or set at a fixed fee of at most five cents per transaction.

For credit card transactions, the parties agreed to cap the fee at 0.3% of the transaction value.

These caps will take effect six months after the legislation enter into force.

Lower prices for everyone

Today retailers are often obliged to accept all cards in any given card scheme, even if they might prefer to accept only those with lower fees.

Under the new rules retailers would be free to choose which cards to accept, unless they are subject to the same interchange fee, complying with the caps set under these rules.

Though the shopper’s freedom to choose which payment card to use could be restricted if retailers exercise this right, lower fees should translate into in lower prices for everyone.

The negotiators also agreed that the new rules should 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 for business expenses would also be exempt from the new rules.

In three years, the rules will also apply to three-party card scheme that licence other parties to issue cards and thereby operate as four-party schemes, in order to avoid unfair competition in the long run.

Next steps

The deal still needs to be endorsed by EU member states and by the Economic and Monetary Affairs Committee, before being put to a vote by the full Parliament next year.

Visa Europe statement

"We welcome the fact that agreement has been reached between the Council and the European Parliament and that the industry we will be able to move forward with clarity on the future position for all players. It is important to ensure that enactment is swiftly and efficiently managed.

"This regulation will have a profound impact on the industry and will require significant adjustments. We continue to have serious concerns that the regulation will have unintended consequences, particularly for consumers, and that it could stifle future innovation.

"The decision to end the so-called Honour All Cards rule in particular will mean that the shopping experience for consumers could be seriously impacted if they are unsure whether their card will be accepted. As a result, there is a real risk that consumers could revert to less efficient and less secure means of payment such as cash.

"Retailers have lobbied hard for this regulation so we now call on them to ensure that they pass on all savings to consumers. Previous evidence from other countries such as Australia and the USA suggests that prices have not been reduced. The experience of those countries in fact suggests that consumers will be worse off as a result of higher card costs.

"In addition, there is a genuine threat that innovation will be suppressed by the lack of funds available to banks to invest in future technologies. This could impact on the further roll-out of contactless and consequently the enabling of mobile payments.

"It is of great concern that three-party schemes have been excluded from this regulation. In particular, allowing three-party schemes to licence their cards to card issuers for a period of three years threatens to seriously distort the marketplace in favour of schemes that are significantly more expensive for retailers to accept and which operate with fees that closely replicate interchange.

"On a positive note, it is encouraging that there is the flexibility of using weighted averages for domestic debit transactions so that secure transactions can be incentivised and appropriate solutions can be found for incentivising innovative payment solutions such as contactless payments. It is good news for businesses that commercial cards have been excluded from the regulation. It is also positive that the proposal to enforce a legal split between card schemes and processing has been removed. There has been no evidence presented to demonstrate the benefits of this separation."

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