EU Fee Caps Effective Today (Dec. 9, 2015)
The European Union’s cap on fees banks can charge retailers for processing credit and debit card payments went into effect today. Now, banks can charge up to 0.30 percent for credit card fees, down from an average of 0.85 percent, and 0.20 percent—with a limit of 5 euro cents—for debit card transactions, down from an average of 0.21 percent for debit transactions.
Based on nearly 10.7 billion credit and debit transactions in Britain in 2013 alone, the caps could save British retailers up to £700 million (US$1.1 billion) a year, according to HM Treasury. The government also said it would like to see the savings from caps passed on to consumers in the form of lower prices.
Some are not so optimistic about the new fee caps resulting in a trickle-down effect, leading to consumer savings. David Parker, CEO, Polymath Consulting notes that banks will recoup their losses from decreased credit and debit processing costs caps in other ways—a burden that will fall squarely on the shoulders of consumers.
“Now that my consumer credit card will no longer be giving me back £500 (US$758.84) a year in cash back, I am looking forward to seeing how dramatically all my retail prices drop,” a cynical Parker tells Paybefore. He doesn’t expect retailers to pass on these savings, because the saving per customer is so small.
Parker points to Australia in 2003, when its interchange regulation resulted in no price reductions from retailers to consumers, and the cost of card fees increasing up to 50 percent. What’s more, cardholders are paying approximately £226 million (US$342.9 million) each year in additional fees as a result of the [Royal Bank of Australia’s] regulation, according to Parker.
Parker also fears that slimming margins will hamper innovation.