18 October 2017

EC plans to cap card fees - FT

17 July 2013  |  6766 views  |  4 credit card

The European Commission is preparing to put a 0.2% cap on all credit and debit card transaction processing fees, according to the Financial Times.

MasterCard and Visa have been battling European authorities for years over the interchange fees that they charge for processing card payments.

Having initially contemplated an outright ban on debit card fees, the EC now looks set to settle on a 0.2% ceiling on both credit and debit transactions, according to a draft plan seen by the FT.

The move would be phased in over two years, with the limit initially only applying to cross-border transactions.

The EC estimates that a cap will slash total debit card fees across the EU from around EUR4.8 billion to EUR2.5 billion, and credit card fees from EUR5.7 billion to EUR3.5 billion.

MasterCard and Visa have already been forced to reduce their cross-border fees to similar levels through antitrust deals but the charges for domestic transactions currently vary widely between countries.

The draft EC plan also requires card schemes and the entities that process transactions to be legally separated.

Card-transaction fees to be capped under EU proposal - FT/CNBC

Update:

American Express Company (NYSE: AXP) issued the following statement today based on preliminary reports characterizing the contents of the European Commission’s draft proposals on payment industry regulation that is scheduled to be released next week.

  • The publication of formal proposals by the Commission will mark the start of a lengthy legislative process and review period.  We expect these proposals to prompt extensive debate among many market participants. 
  • The proposals focus primarily on and cap the interchange fees charged by four-party payment systems, such as Visa and MasterCard. 
  • The discount rate that American Express charges merchants would not be regulated. 
  • Our proprietary consumer and corporate card businesses are not covered by the proposed pricing caps.   
  • Three-party systems, such as American Express, would only be covered when they license other institutions to issue cards, as in our Global Network Services Business.  GNS represents a relatively small percentage of our European business. 
  • The provisions that focus on separating the payment network and processing functions do not appear to impact proprietary networks like ours. 

Given the potential impact on consumers and competition within the European payments sector, American Express has been in touch with senior policy makers at the Commission and will continue to represent its positions vigorously throughout the process.

Comments: (4)

Alexander Peschkoff
Alexander Peschkoff - TEDIPAY - London | 17 July, 2013, 11:09

So, EU merchants will pay 0.2% on Visa/MasterCard transactions whilst the same transaction (with the same) card in other parts of the world will cost 10-12 times more?.. Yeah, sure thing...

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Alexander Peschkoff
Alexander Peschkoff - TEDIPAY - London | 17 July, 2013, 13:11

I spoke to MasterCard and FT. The (leaked) planned capping, at this stage, concerns just Visa and MC, i.e not Amex (who impose the highest charge on retailers). Also, it is not clear whether (and how) non-EU card transactions can be capped.

If I am a merchant and get 0.2% rate with V/MC and 2.5-3% with Amex (who is profiting both on the acquiring and the issuing sides), will let Amex carry on?.. If Amex is capped too, that gives them (unfair) advantage - for the above reason...

As for non-EU cards, there could open interesting arbitrage opportunities (for multinationals, on the retail and banking side)...

More clarity will be provided on 24 July.

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Andrew Smith
Andrew Smith - CB Infrastructure - London | 18 July, 2013, 10:51

I'm not sure how this is possible. There are so many different players in a credit / debit card transaction, of which the card schemes are only one. So is this 0.2% fee on interchange fee charged by the card scheme, or is it at the aquirer end. If the aquirer then how can the card schemes and banks make money from transactions, remembering they need x just to support the infrastructure.

I think this is only possible if it applies to interchange fees only, but that wont necessarily stop busiensses seeing fees of 3% (or higher in some cases). The profie would simply be moving away from teh card scheme and back to the bank or to the aquiring bank...

Then we have issues with other schemes outside the EU etc etc...Not sure just how practicle this all is...

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Miles Carroll
Miles Carroll - UPG plc - Birmingham | 18 July, 2013, 17:34

Will The EU Harm Lower Income Families By Reducing Merchant Service Charges?

 

In a recent leaked document the EU is purported to be considering a limit of 0.2% on the merchant service charge for credit cards and debit cards; these charges underpin a huge infrastructure that protects merchants, retailers and therefore vital tax income to governments. Is it the place of regulators to remove the ability of an industry to protect cardholder and the wider social infrastructure?

 

Every open market transaction needs a willing buyer and a willing seller, when regulators try to affect this dynamic the consumer ends up paying the price, but perhaps in a different way.

 

So what happens when you hack away at a 30 year old industry and remove 80% of an income level? We are fortunate (?) in the UK to have a worked example of this; when pension advisors were paid a commission to sell financial products and get paid commissions, regulation was introduced that effectively killed this industry layer, and has in the view of many left a generation without adequate retirement advice and under performing investments, this is a social timebomb that the next generation of tax payers will suffer the cost of. The resolution is of course more intervention, government pushes mandatory pension contributions in poorly resourced funds, we now have a 2 tier investment economy where more wealthy investors are achieving 11% annual returns with paid advisors and central government in suggesting that 3% is adequate for everyone else.

 

Costs will always need to be covered, so how will the consumer be protected if the costs of securing and managing the infrastructure of the card industry are slashed by a myopic regulator, the costs will simply move, they won’t go away.

 

So with the largest chunk going to the card issuer, if this revenue share is removed the cost of cards will undoubtedly increase, will the issuers look at this as a way to increase margins with larger than required increases?

 

The management of the lifecycle of a card is an expensive business, massive anti-fraud and fast global authorisation a scheme switching processes make for quite an overhead; the investment has allowed the proliferation of cards and a largely inclusive financial environment.

 

We estimate that the banking and financial services spend considerably more on fighting financial fraud than the police and criminal justice spend investigating the fraud that slips through the net. Does this mean that the pressure on our police to investigate complex and often international fraud will impact on their ability to protect us?

 

So what does the future look like with a payments industry that becomes unfit for task due to under-investment?

Merchants may no longer be insulated from fraud and chargebacks, lower charges don’t allow for this mitigation of central services. Will merchants close who are not adequately protected? Will merchants select the people they will do business with because of the perceived risk and cost of processing?

 

Cardholders at the lower end of the social ladder, will find that their cards are suddenly very expensive, retailers may turn them away as well as the restriction in the availability of cheaper cards to own.

 

As UK central government sells down the bank stocks, these issues will be outside the control of the politicians and land politicians in the firing line with voters. If you bail out the banks and then services are perceived to rise massively it makes for a “botched job” for whoever is at the helm when this ship docks.

 

Lower charges on cards, means that businesses will fail, the card industry will shed jobs, organised crime will extend their operations against card holders and the everyday consumer will be left to pick up the bill.

 

When a bloated E.U. stops looking at their feet and looks to the horizon they might just see the ludicrous nature of their potential actions and how everyone except organised crime and Brussels expense accounts will suffer.

 

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