EU agrees interchange reforms
18 December 2014 | 11276 views | 12
The fees that banks charge retailers to process shoppers’ payments should be capped under uniform rules across the EU following a deal struck by Economic and Monetary Affairs Committee and EU Council negotiators.
The cap would apply to both cross-border and domestic card-based payments with the avowed aim of eliminating national differences in interchange charges. The move sees the EU states resort to legislative reforms following protracted battles with MasterCard and Visa in anti-competitive courts.
For cross-border debit card transactions the agreed cap is 0.2% of the transaction value. For domestic transactions, member states can apply the cap of 0.2% to the "annual weighted average transaction value" of all domestic transactions within the card scheme, says the EU Parliament.
The system of applying the cap on a weighted average basis will apply for five years only. Thereafter, interchange fees for domestic transactions will be subject to a simpler, more transparent regime where the ceiling for a domestic transaction is 0.2% of the transaction value, or set at a fixed fee of at most five cents per transaction.
For credit card transactions, the parties agreed to cap the fee at 0.3% of the transaction value.
The rules will also allow more freedom for retailers to choose which cards to accept, unless they are subject to the same interchange fee.
Says the memorandum: "Though the shopper’s freedom to choose which payment card to use could be restricted if retailers exercise this right, lower fees should translate into in lower prices for everyone."
It's an argument vigorously disputed by Visa and MasterCard, who say that retailers will just pocket the change and not pass on any savings to consumers.
The negotiators also agreed that the new rules should not apply to so-called three-party card schemes such as Diners and American Express (involving only one bank) provided the card is both issued and processed within the same scheme. Commercial cards used only for business expenses would also be exempt from the new rules.
In three years, the rules will also apply to three-party card scheme that license other parties to issue cards and thereby operate as four-party schemes, in order to avoid unfair competition in the long run.
The deal still needs to be endorsed by EU member states and by the Economic and Monetary Affairs Committee, before being put to a vote by the full Parliament next year.