Two European trade associations have issued a letter raising objections to the UK’s proposed interchange fee cap for payments originating from European issuers, saying that the proposal could harm the EU’s financial systems.
UK legislators proposed the new rules after a review found that UK businesses paid an additional £150 million to £200 million in interchange fees to EU credit card companies in 2022. These fees are incurred when consumers use an EU-issued debit or credit card to make online purchases from UK businesses.
In response, UK regulators proposed a temporary credit interchange cap of 0.3% and a debit cap of 0.2% on EU cards, and lawmakers will determine permanent caps after further analysis.
“While we appreciate the rationale for taking action to boost competition and innovation in payments domestically, and cross-border, we see the proposed measure as potentially discriminatory, a risk to the integrity of national payments and retail banking markets in the EU and counterproductive,” the European Banking Association and Payments Europe wrote in a letter.
Points of Contention
The two groups also noted that EU financial institutions “will lose money on each transaction.” Fintechs and digital-first banks could be particularly affected, as they don’t offer widespread lending and are much more reliant on payment fees.
Another point of contention was that the proposed UK regulation did not address the other side of the coin—where UK consumers use their cards for transactions in the EU.
Heated Debates
According to the Financial Times, UK regulators were spurred into action after Visa and Mastercard raised their fees in 2022, given that roughly 99% of UK debit and credit card payments are processed by these two companies.
U.S. merchants have echoed similar concerns, having agreed to a $30 billion settlement with Visa and Mastercard over high interchange fees. However, this settlement was ultimately rejected because merchant groups, like the National Retail Federation (NRF), argued that the deal was far less than merchants were owed, and a NY judge agreed.
While debates over credit card interchange fees are likely to continue, many overlook the role credit card companies play in worldwide payments infrastructure. Dramatic changes in interchange fees could have immediate implications for consumers.
“The NRF’s position is card payments should be free to the retailer,” Don Apgar, Director of Merchant Payments at Javelin Strategy & Research, told PaymentsJournal in June. “The challenge is card issuers have two income streams: fees from merchants and fees and interest from cardholders.”
“If merchant fees are removed, every card could have a $199 annual fee, no rewards, and a 29.99% APR,” he said. “Granted, there’s room to improve card pricing and structure, but rarely does progress happen when one side pushes relentlessly in court to get everything for free.”