European governments have agreed to cap the fees retailers pay to process debit and credit card transactions in a move the EU parliament said should bring down costs for customers.
Negotiators agreed late last night to cap charges across the 28 countries in the union following a long battle over charges with payments groups, including Visa and MasterCard.
The cap would apply to both cross-border and domestic card-based payments which cost businesses across the EU around €10bn a year. The fees are opaque and differ from country to country.
Retailers are charged for every card transaction and add the costs to the prices of the goods or services they offer.
“This legislation is good for consumers, good for business, and good for Europe. It will lead to lower prices and visibility of costs for consumers,” said Margrethe Vestager, commissioner in charge of competition policy.
She said the interchange fee was a “tax” levied on business by banks and the price cap should release “the brakes that have so far held back innovation.”
Visa said clarity on the fees was welcome, but warned it could hurt the cards industry and said there was no guarantee that retailers would pass on the savings to consumers.
“We continue to have serious concerns that the regulation will have unintended consequences, particularly for consumers, and that it could stifle future innovation,” Visa said in a statement.
The European parliament said credit card fees will be capped at 0.3% of the transaction value.
Cross-border debit card fees will be capped at 0.2% of the transaction value, and domestic debit card fees will be capped at 0.2% of the annual weighted average transaction value of all domestic transactions within the card scheme.
Fees charged by banks belonging to card schemes such as Visa and MasterCard, so-called four-party schemes involving the bank who issued the card, the retailer, the retailer’s bank and the card user, will be affected by the cap. They account for the lion’s share of the market.
The price cap will not initially apply to the so-called three-party card schemes, such as Diners and American Express, which involve only one bank.
Retailers will also be free to choose which cards to accept, effectively ending the so-called ‘Honour All Cards’ rule.
Visa said that could be bad for consumers if they are unsure if their card will be accepted.
Commercial cards used only for business expenses would be exempt from the new price cap.
These caps will take effect six months after the legislation enters into force. It first needs to be endorsed by EU governments and by the Economic and Monetary Affairs Committee, before being put to a vote by the full parliament next year.
Regulators in individual EU countries are also investigating the cards industry.
In Britain, where 70% of Europe’s credit cards are held, the financial watchdog is assessing the way cards are sold amid concerns that poorer customers are trapped in a spiral of debt on their cards.
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