The fees that banks charge retailers for processing shoppers' payments should be capped, Economic and Monetary Affairs Committee MEPs decided in a vote on Thursday.
I wonder if the MEPS really understand that a cap on interchange will not reduce costs to consumers, but rather result in higher banking fees for consumers?
How can one defend interchange fees of 8%, for example on the MasterCard World card handed out by a red UK bank to their customers, that merchants are forced to accept under the 'honour all cards' rule and which costs a fuel retailer 10p a litre when their
gross margin is 5p a litre. The merchant then jacks up the price 1p a litre for everyone hoping that only 10% of customers come with a premium brand card. Who then is subsidising all the benefits on the account that Lewis Hamilton and other multimillionaires
are paid to advertise? It is other consumers. This is the first sensible thing to come out of Europe for years: one lot of consumers stop unwittingly subsidising another lot of consumers. For sure there will be ructions when it becomes apparent who has been
underwriting whom and for what amounts.
There's no reason to suppose that a cap on interchange fees will result in higher banking fees.
There are countries with a zero interchange fee who have a thriving card market, so it would be wrong to automatically assume higher fees will follow. If it does, then consumers can start to see which bank can offer the cheapest services and switch to them.
It only takes a week to change bank accounts in the UK now. It'll enhance competition in the banking sector which can't be a bad thing and hopefully consumers will get a better deal out of the increased transparency it will bring.
Hopefully banks won't be worse off as card acceptance should actually increase as it becomes more affordable for the SME's to accept card payments - something that the high costs have previously put them off doing.
One basis of the proposed cap is to reduce consumer costs.
So the first question is if retailers do in fact get lower fees from Acquirers, will they pass that on to consumers?
Second point - there is basis to expect bank fees to go up.
The Dubin Amendment in the US cost card Issuers circa US $7 BILLION. No industry will just sit back and lose that much revenue. As a result, US banks have raised and/or created new banking fees to recover that, no suprise.
Debates on Interchange are healthy. My only point is to assume reduced Interchange will in fact reduce consumer costs is very unliklely.
To me, a like analogy is that if a retailers rent goes down, do they pass that reduction on to consumers?
I think you're making the wrong analogy and don't fully appreciate exactly how competitive the retail sector is.
The text below is an extract from a letter signed by the CEO's of 13 of the UK's largest retailers and Trade Associations including M&S; Sainsbury's; Asda, Morisons, Dixons, Boots; WH Smith and The British Independent Retail Association which represents
smaller businesses. It was released by the British Retail Consortium on 16th December last year.
The market in which we operate is highly competitive. We compete on price and value every day and put our customers at the heart of everything we do. Any savings in a reduction in card interchange fees will create capital to enable a range of investments
to be made such as, investing in new store designs; improving customer service propositions; extending the range of products available; investing in technology to improve the customer shopping experience (multichannel, mobile); expanding our commercial footprint
through new stores; and crucially, enabling small businesses to compete more effectively.
In effect, ALL consumers will benefit including those that choose to pay be cash.
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