The European Commission has publicly confirmed plans for a new Directive on payment services across the EU, and proposals to cap interchange fees for domestic card-based transactions.
The Commission says the EU market for cards, Internet and mobile payments remains fragmented and faces important challenges that hinder its further development and slows down the potential of a single market.
Internal Market and Services Commissioner Michel Barnier says: "Today, the payment market in the EU is fragmented and expensive with a cost of more than 1% of EU GDP or €130 billion a year. These are costs our economy cannot afford. Our proposal will promote the digital single market by making Internet payments cheaper and safer, both for retailers and consumers. And 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."
The revised Payment Services Directive introduces new 'payment initiation services' that operate between the merchant and the purchaser's bank, allowing for electronic payments without the use of a credit card.
"These service providers will now be subject to the same high standards of regulation and supervision as all other payment institutions," says the Commission.
At the same time, banks and all other payment service providers will need to step up the security of online transactions by including strong customer authentication for payments. By the same consequence, consumers may be required to face only very limited losses - up to a maximum of €50 (vs €150 currently)- in cases of unauthorised card payments.
The Regulation on interchange fees, combined with the revised PSD, will introduce maximum levels of interchange fees for transactions based on consumer debit and credit cards and ban surcharges on these types of cards.
The Commission is proposing an initial 0.2% ceiling on debit card fees and 0.3% cap on credit cards for cross-border transactions during a 22-month "transition period".
Thereafter the caps will also apply to domestic transactions.
The new rules only apply to cards issued by MasterCard and Visa, with three-party model schemes such as American Express and Discover exempted. In the latter case, retailers will be allowed to continue to impose surcharges for their use or refuse outright to accept them.
However, all transactions processed through AmEx's Global Network Services (GNS) business - when its brand is licensed for use by other companies - would fall within the scope of the proposed pricing caps. This applies to about nine percent of American Express' business.
In imposing the caps, the Commission points out that the level of interchange fees varies widely between Member States, "which suggests that they do not have a clear justification and create an important barrier between the national payment markets".
The EC estimates that a cap will slash total debit card fees across the EU from around €4.8 billion to €2.5 billion, and credit card fees from €5.7 billion to €3.5 billion.
While the Commission anticipates the savings to retailers will be passed on to consumers through lower prices, market commentators expect a more likely consequence for consumers will be an increase in cardholder fees and interest rate hikes as issuers look to recoup lost revenue.