The European Union’s executive body proposed a strict cap on credit and debit card fees on Wednesday, in a move it said could save consumers billions of euros.
The proposal, from the European Commission, seeks to put an end to a lengthy series of antitrust battles that it has waged against payment networks such as MasterCard and Visa Europe, the European licensee of Visa Inc.
The commission has called for interbank charges to be capped at 0.2% of the value of consumer debit-card transactions, and 0.3% for consumer credit-card transactions, as reported by The Wall Street Journal last week. Those levels, far below what is charged in countries such as Poland, would be equivalent to the cost to merchants of taking payments in cash, according to the proposal.
The fee caps “will remove an important barrier between national payment markets and finally put an end to the unjustified high level of these fees,” said Michel Barnier, the EU commissioner responsible for financial regulation.
Visa Europe and MasterCard didn’t immediately comment on the proposals, but a spokesman for MasterCard said last week that the company is concerned fee caps would lead to higher costs for cardholders.
So-called interchange fees are set by companies such as Visa and MasterCard and are collected by banks that issue credit and debit cards each time a consumer makes a purchase with a card. The fees vary widely across the EU, with average levels ranging from less than 0.2% in the Netherlands to more than 1.5% in Poland.
The commission argues that the current fees system is anticompetitive and leads to higher prices for consumers.
“The interchange fees paid by retailers end up on consumers’ bills,” said EU competition commissioner Joaquín Almunia.
Wednesday’s proposal would help save retailers €6 billion ($7.93 billion) in fees, which would likely be passed on to consumers through lower prices, the commission said. However, the extent of savings for consumers “will depend on the retail sector considered, the size of the merchant, its use of payment instruments and the ‘basket of purchases’,” it added.
The proposal also calls for a legal split between payment card systems and the companies that process transactions, in a move aimed at boosting competition.
The caps would enter fully into force after a 22-month transition period, but would apply to cross-border payments during that period, according to the proposal.
It will be discussed and modified by EU member states and the European Parliament before entering into law, a process that can take years.
The caps won’t apply to corporate cards, and will only apply to so-called three-party payment systems, such as American Express Co., AXP -0.41% where those systems use interchange fees, according to the proposal. That “represents 9% of Amex cards,” it said.
Three-party payment systems have no explicit interchange fees because they both take payments from consumers and pass them directly to the merchant. By contrast, transactions processed via companies such as MasterCard involve four parties: the cardholder, the bank that makes the payment, the bank that receives it on behalf of the merchant and the merchant itself.
Some banks have threatened to raise cardholder fees in response, but the commission said that such a move “may not be easy” because cardholders would be able to see the increase and switch cards. Banks’ revenues may also remain relatively steady because lower fees would likely increase the number of transactions, it added.
The proposal aims to put an end to antitrust investigations launched by the EU over interchange fees in recent years, most recently against MasterCard in April. The U.S. company pledged at the time to “fully cooperate” with regulators.
That probe came after the commission banned MasterCard’s cross-border interbank fees for transactions by European consumers within the EU in 2007, a decision the company is now appealing for a second time.
EU regulators also filed a fresh complaint against Visa Europe last July, saying some of the company’s fees hurt competition and increased prices for consumers. Visa Europe said at the time that it regretted the commission’s decision, describing the move as “confrontational.”
In the U.S., Visa, MasterCard and several banks reached a settlement last July with numerous retailers and merchant trade groups over interchange fees. The companies agreed to pay $6.05 billion to merchants and temporarily reduce interchange fees by an amount equal to $1.2 billion.
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