Interchange regulation begins to take effect in Europe

As of December 9, interchange regulation, which caps rates in Europe are now capped at 30 bps for credit cards (commercial cards excluded) and 20 bps for debit and prepaid cards.

As shown in Figure 1, these rates caps have been implemented in relatively uniform fashion across Europe, with only a few exceptions around the timing (e.g., Norway, a non-EU country has yet to implement) or structural specifics (e.g., an extra “loading fee” in the UK) – writes Joel Van Arsdale, Partner and Jip de Lange, Senior Consultant in Innovative Payment Solution at First Annapolis.

Figure 1: Historical Interchange Rates for Selected EU Markets

Source: visaeurope.com and mastercard.com.

Anecdotal evidence suggests that the rate reduction benefits were, for the most part, immediately available to larger merchants. Few merchants today are on interchange plus pricing*; however, and for smaller merchants that pay one blended rate, the price drops are not yet generally visible in publicly listed pricing (see Figure 2). Note that these list prices do not reflect a competitive pricing environment in which we expect the pricing has already been impacted by the regulation. Our own selective mystery shopping suggests this was already the case even before December in the UK, for example.

Figure 2: Publicly Listed Pricing Prior to and After the Implementation of Rate Caps (Selected UK providers)

Source: Company websites and First Annapolis Consulting primary research.

*Note that regulations which effectively mandate interchange plus pricing or otherwise are subject to different timing. These arrangements are partially in effect today and will become fully effective in June of this year.

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