Official EU Plan to Cap Debit and Credit Interchange Confirmed

by Mercator Advisory Group 0

The European Commission the last few months release unofficial proposals to cut credit and debit interchange fees in the European Union. The commission officially announced today its plans to cap interchange fees in two years.

Debit card interchange fees would be capped at 0.2 percent of a transaction, which is about what those transactions already cost merchants. Credit card transactions, the more lucrative transaction type, will see its maximum fees dropped to 0.3 percent of a transaction, down about 0.6 percent from today.

EU Internal Market Commissioner Michel Barnier commented on the Commission’s plans:

“The proposed changes to interchange fees will remove an important barrier between national payment markets and finally put an end to the unjustified high level of these fees,”said Barnier. European Commission competition chief Joaquin Almunia added, “The interchange fees paid by retailers end up on consumers’ bills. Not only are consumers generally unaware of this, they are even encouraged through reward systems to use the cards that provide their banks with the highest revenues.”

While the cap pleases merchants, the card networks will need to seek out new revenue streams to replace the losses. Some financial institutions told BBC News consumers might have to pay an extra £11 (US$16.90) a year to make up for the losses. Credit cards are even worse as cardholders may have to pay an extra £25 ($38.40) to use their credit cards.

The announcement of the proposal comes at a time when MasterCard is arguing the benefits of interchange fees to Europe’s highest court. However, regardless of the ruling, the EC proposal will have ramifications that will be felt far beyond Europe where other countries are debating their domestic interchange structure and whether to remove interchange as well.

With the United States introducing the Durbin Amendment in 2011, and now the EU adopting an interchange cap model, interchange fees are becoming an endangered revenue source for issuers and card networks.

Click here to read more from BBC.