European Parliament Sets Interchange Fee Caps
The European Parliament on March 9 voted in favor of capping interchange fees for domestic and cross-border transactions, a move that many European banks anticipated.
The vote was good news for the European Commission, which had sought to lower the fees that banks charge retailers to process card transactions from the major MasterCard and Visa brands. The commission has estimated that the new rules, which would take hold in October, could reduce "hidden fees" for consumer cards by 6 billion euros a year.
The new regulation will cap interchange fees at 0.2% of the transaction value for consumer debit cards and at 0.3% for consumer credit cards. For consumer debit cards, it also gives flexibility to member states to set lower percentage caps and impose maximum fee amounts.
Prior to the ruling, interchange fees in Europe were not transparent and differed in each country for both domestic and cross-border transactions. Some were established through legislation, others through national competition authorities.
The banks and card brands have expected for some time that the European Parliament was going to cap interchange fees, a factor of Europe's continuing push to reshape its payments ecosystem through its second version of the Payment Services Directive.
The combination of the new interchange rates and the various changes the PSD2 is seeking will "establish a level playing field for payments across Europe" to stimulate competition and allow retailers and users to choose the card schemes that provide the best terms, commissioner Pablo Zalba stated in a press release. Zalba steered the proposal through parliament.
European lawmakers and the banking industry have debated interchange rates for some time, but the conversation took a more serious tone in September 2014 when the European Union ruled against MasterCard in an antitrust case regarding cross-border transaction fees.
In a similar fashion as the Durbin amendment in the U.S., the new European regulation addresses licensing issues and other conditions that parliament says have restricted routing choices for retailers.
"This legislation will put a cap on interchange fees, make them more transparent and remove a hurdle to rolling out innovative payment technologies," commissioner Margrethe Vestager stated in a press release.
The new interchange fees and accompanying rules are "good for consumers, good for business and good for innovation and growth in Europe," Vestager said.
The new rules will not apply to so-called "three-party" card schemes such as Diners and American Express, provided the card is both issued and processed within the same scheme, parliament said. Commercial cards used only to pay business expenses are also exempt.
In a routine matter, the European Council of Ministers must approve the new rules before they officially take hold in October.