European Commission Interchange Fees Cap of Debit Credit Cards
The European Parliament has passed a bill to reduce the debit credit card interchange fees charged by
card schemes (mainly Groupement des Cartes Bancaires, MasterCard and VISA Europe) for payments using credit and debit cards.
The new rules will not apply to "three-party" card schemes such as American Express (Amex) and Diners Club provided the card is both issued and processed within the same scheme.
Also, Commercial cards used only to pay business expenses will also be exempt and after three years, the rules will also apply to three-party card schemes that licence other parties to issue cards.
As of October 2015, the European Regulations has cap the credit and debit cards interchange fees at 0.2% of the transaction value for consumer debit cards and at 0.3% for consumer credit cards as a result of a violation of EU antitrust rules by the card schemes.
It is hope that this European legislation will put a cap on interchange fees, make them more transparent and remove the hurdle to rolling out innovations in debits and credits cards payment technologies.
The regulations hope this will help growth in Europe, encourage innovation in online payments, and reduce costs for business and consumers. Benefits Due to Debit Credit Card Interchange Fee Cap.
There is a good possibility that the interchange fee cap could drive down the Merchant Service Charge,
Unless of course the online payment market is already ahead of the regulatory authorities since there is no guarantee that these benefits will be passed onto the consumer.
It is a debatable if there is actually any benefit to the consumer for interchange fees cap. This is as a result of what had taken place in the United States of America (USA),
Where there have been some limited restrictions placed on debit credit interchange, the merchants just reduced their costs but savings were not passed onto consumers.
Experience has shown that someone will have to pay for these interchange fees cap changes. It was seen in the USA that the consumers ended up paying more because the issuers banks needed to find ways to make up for that lost revenue stream.
Any Benefits to Acquirers?
Acquirers are the group with most benefits due to interchange fees cap.
It is safe to say that the lower interchange fee cap does not automatically translate to lower Merchant Service Charges because acquirers use it as an opportunity to drive more margin from businesses on "blended pricing".
As seen in the USA, the acquirers pocketed the profit. Benefits to merchants on blended pricing will be drawn out over a prolonged period.
Reduction in debit credit cards interchange fees and loss of revenue to card schemes issuers raises the following questions:-
• Where and how will card issuers make up at least some of the difference/shortfall - from the customer?
• What will happen to debit credit cards innovation? Would interchange fees cap help promote innovation?
• Is there sufficient bandwidth in these rates to incentivise security and innovation best practices?
• As acquirers are increasingly more transparent and interchange fees becomes a lower figure as a value, will it not just highlight their own inefficiencies by exposing acquirer processing costs?
• Is it true that only large merchants understand the ramifications of interchange reductions, therefore smaller merchants will continue to subsidise?
• It is worth noting that as it stands today, Visa debit rates in the UK are temporarily higher than previously, before they are reduced again. What is MasterCard doing?
• Is Debit Credit Card Interchange Fee Cap Bad Legislative Move for Consumers?
The new Payment Services Directive (PSD2) was meant to bring more competition to the electronic payments market, providing consumers with more and better choices between different types of payment services and service providers.
However, there is this general consensus that the debit credit card interchange fees cap is a bad move for consumers as the pressures on regulatory to be seen to change things,
The relationship of banks to new technology companies (e.g. Apple, Google, Facebook etc...) and the role crypto and distributed ledger technologies wants to play in the future of banking gives the impression as if the European Regulatory Authorities really understand what they're doing.
Card issuers - VISA and MasterCard are losing a large chunk of their income. How can they provide the security and innovation needed and provide other benefits to their cardholders?
Acquirers could pass the lower rates on to the large merchants but they will not reduce their prices, as in many countries much of the payment transactions is still cash.
Imagine if you're a merchants, will you reduce the prices as you've gained 0.5% in lower costs? Not a hope!
Also there is no such thing as a third-party model only a four party model - where one party plays two roles.
So, if American Express and Diners Club who are traditionally the highest Merchant Service Charge (MSC) get to keep it all when the issuing banks that are members of MCW (MasterCard Worldwide) and Visa suffer... and Visa and MCW make or lose nothing from this at all, just their members.
It is anticipated that this will have little or no effect on retail prices, where acquirers opt to pass on the changes in retail MSC charges.
It will be the retailer that will benefit in seeing his cost of processing payments by card reduce in the majority of cases as the consumer will see no benefit what so ever.
Interchange fees for card-based payment transactions
Accept or take card payments today 2020 as the proposal for a regulation of the European Parliament and of
the Council on interchange fees for card-based payment transactions are reducing.
Interchange fees for card- based payment transactions are at all time low. No excuses for not having Card Payments which are fast and secure payment processing. Every little helps Tesco, even with the interchange fees cap.