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EU agrees caps on debit and credit card interchange fees

Interchange fees to process debit and credit card transactions are to be capped under an EU law that attempts to wrap-up a protracted battle with payment groups such as Visa Europe and MasterCard.

Negotiators for EU member states and the European Parliament on Wednesday night

Visa MasterCard logo

EU caps debit and credit card interchange fees

agreed draft terms to introduce maximum fees to handle card transactions, scaling back a multi billion-euro revenue stream for European banks – reports the FT.

The ceiling in the regulation of about 0.2% for debit card rates and 0.3% for credit cards is in line with antitrust deals on cross-border fees. Its impact is likely to be felt most in markets such as Germany, where average credit card rates stand at 1.8%, and Poland, where average debit card charges are 1.6%.

Retailers have long decried paying what they see as excessive fees for handling card payments, the cost of which is hidden from consumers. Under the reforms, retailers will also now enjoy more freedom to chose between cards charging different fees.

Brussels’ resort to regulation was an attempt to provide a more comprehensive solution to an issue that had stretched the limits of antitrust enforcement for more than two decades. It follows similar legislative efforts by the US, Switzerland, Spain and Australia, the results of which were bitterly contested.

Margrethe Vestager, the EU competition commissioner, said: “This legislation is good for consumers, good for business, and good for Europe. It will lead to lower prices and visibility of costs for consumers. It reduces a ‘tax’ levied on business by banks in the form of interchange fees, and releases the brakes that have so far held back innovation.”

Card schemes and banks warn the legislative reforms will backfire because retailers will pocket any savings from fee restrictions, while consumers will pay more through upfront banking fees. Crucially, MasterCard lost its court appeal against a commission finding that the interbank card fees violated competition law.

In 2011, about 727m payment cards were issued in the EU and the value of card transactions exceeded €1.9tn. Visa and MasterCard have a 41.6% and 48.9% market share respectively.

Retailers across Europe pay banks about €13bn a year to handle transactions, and 70% of this charge is accounted for by interchange fees between banks handling the process.

Under the draft deal, cross border debit card transactions are limited to 0.2% of the transaction. For domestic transactions, member states have an option, for up to five years, to apply the 0.2% limit to the annual weighted average.

The rules also partly apply to so-called three party schemes, such as Diners Club and American Express, which do not use an interchange fee. The schemes will not be subject to the regulation as long as the card is both issued and processed within the same scheme. After three years, this will extend to schemes that licence to other parties to issue cards.

MasterCard and Visa were able to overturn a parliamentary proposal and win an exemption for commercial cards used only for business expenses.

The draft deal agreed on Wednesday will need to be formally approved by EU member states and the European Parliament early next year.


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