European Parliament Passes Interchange Fee Caps

by Tristan Hugo-Webb 0

Mobile apps concept in flat design style.

The European Parliament has voted to implement a bill thatwould cap the interchange fees charged by card networks like Visa andMasterCard on payments using both consumer debit and credit cards. The newregulation that will come into effect in October of this year will capinterchange fees at 0.2% of the transaction value for consumer debit cards andat 0.3% for consumer credit cards. In addition to this cap, the new regulationwill allow individual member states to define lower percentage caps and imposemaximum fee amounts meaning the overall caps charged in some countries could bemuch lower than the pan-European rate.

Commenting on the new regulation, European CommissionerMargrethe Vestager, in charge of competition policy said, “This legislationwill put a cap on interchange fees, make them more transparent and remove ahurdle to rolling out innovative payment technologies. It is good forconsumers, good for business and good for innovation and growth in Europe. Ascards are the most widely used means of online payment, this Regulation is alsoan important building block to complete the European Digital Single Market.”

While the announcement has been expected for some time andwas welcomed by the European Commission which first proposed the interchangecaps in detail in 2013 and has said that the regulation could lead to areduction of about €6 ($6.45) billion annually, the regulation passed is not asstrict or imposing as once feared as at one point, regulators were consideringadding interchange caps to third party networks like American Express andextending the mandate beyond consumer debit and credit cards to commercialcards.

Though the limited scope of the regulation is better for theindustry, the historic evidence has shown interchange fee caps have not broughtmuch of the intended benefits to consumers instead merchants and other playershave gained from said regulation. Further complaints include the reduction offree banking products and lack of innovation due to reduced revenue frominterchange fees.

Overview by Tristan Hugo-Webb, Associate Director, Global Payments for Mercator Advisory Group

Read full story at Finextra

Featured Content