EC Proposes Interchange Fee Caps Across EU (July 25, 2013)
July 25, 2013
The European Commission (EC) has proposed new regulations curbing interchange fees, including a 0.3 percent cap on credit card fees and a 0.2 percent cap on debit card fees. The caps would also apply to prepaid cards. Interchange fees in the European economic region currently range from 0.1 percent to 2.5 percent on payment card transactions, according to the EC, amounting to about 6 billion euros (US$8 billion) annually. If approved, the regulations initially would cover cross-border transactions, then apply to all card transactions within about two years. The proposed regulations would also eliminate the Honor All Cards rule and prohibit rules that prevent merchants from steering customers to lower-cost payment methods. Because of their network structures, the proposed regulations would have only a limited effect on proprietary card transactions of American Express Co. and Discover Financial Services, according to Fitch Ratings, Inc.
The EC also published a revised Payment Services Directive addressing improvements for what it calls a “fragmented” payments market across the 28-nation EU. The directive would promote new, low-cost Internet payment services to be categorized as “payment initiation services,” that connect merchants and their customers’ banks without the use of a credit card, according to the EC. “These service providers [covered under the revised PSD2] will now be subject to the same high standards of regulation and supervision as all other payment institutions,” the EC said. Banks and payment service providers also will be required to step up security protocols around online transactions and consumers will be liable for losses only up to 50 euros (US$66) for unauthorized transactions, compared with 150 euros (US$198.50) currently.
The British Retail Consortium (BRC) is among merchant organizations that applaud the move. “Capping these excessive and anti-competitive fees will support the U.K. retail industry by £362 million (US$555 million) a year, boosting the industry’s ability to invest and innovate while continuing to deliver lower prices and value for consumers,” said Helen Dickinson, BRC general director. BRC members plan to lobby for enacting the proposed legislation as early as next year.
Payment industry providers expressed caution about the proposed interchange caps. “Banks and the EU should think more creatively about how they can offset the transaction fees that are needed to keep the payments system moving,” said Mike Fromant, managing director of Contis Group, a North Yorkshire, U.K.-based provider of debit, e-money and rewards card programs.