Payments Industry Update: European Commission announces regulation of Interchange Fees and a ban on Surcharges
Today the European Commission unveiled its legislative package to adapt the EU payments market to the opportunities of the single market and to support EU economic growth . The package includes a proposal for a cap on multilateral interchange fees (MIFs) for card-based payment transactions. MIFs are set by credit-card companies and collected by banks each time a consumer makes a purchase on a card. Fees across Europe vary widely, from less than 0.2% in the Netherlands to more than 1.5% in Poland. In addition, surcharges on consumer debit and credit cards will be banned by the new Payment Services Directive (PSD2). Surcharges are the extra charge imposed by some merchants for payments by card and, according to the Commission, are common notably for purchases of airline tickets online. In 95% of cases, merchants will no longer be allowed to surcharge consumers for using payment cards, whether for domestic or cross-border payments. This measure alone is set to save consumers 730m euro each year. So called 'three-party schemes' such as American Express and Diners, as well as commercial cards issued to businesses, which together account for the remaining 5%, are not covered by the surcharging prohibition. Retailers will be able to surcharge for these cards or refuse to accept them.
Introducing the legislative package, Michel Barnier, Internal Market and Services Commissioner, said "...the proposed changes to interchange fees will remove an important barrier between national payment markets and finally put an end to the unjustified high level of these fees." Vice President Joaquín Almunia added "...interchange fees paid by retailers end up on consumers' bills. Not only are consumers generally unaware of this, they are even encouraged through reward systems to use the cards that provide their banks with the highest revenues... the regulation capping interchange fees will prevent excessive levels of these fees across the board."
MIFs have long been under regulatory scrutiny, with laws adopted in the United States, Australia and other countries, and several EC decisions under EU competition laws including the 2007 MasterCard case. Although included in a merchant's cost of receiving card payments, regulators are concerned that interchange fees are ultimately passed through to consumers through higher prices amounting to tens of billions of euros each year. With Visa and MasterCard's market share estimated at 96.8% in value, and with interchange fees already banned in countries such as Denmark and the United States, the Commission believes that regulation is required. This is despite the MasterCard case, the proceedings against Visa Europe (which lead to undertakings for consumer debit cards in 2010 and consumer credit cards in 2013) and a rash of other national competition proceedings.