Lucrative fees to process card transactions are to be capped under a proposal by the EU's executive arm aiming to draw a line under a decade-long battle with payment groups such as Visa Europe and MasterCard. Under a draft European Commission plan a ceiling would be introduced for charges on all consumer debit and credit card transactions, scaling back a large revenue stream for banks.
The measure stops short of a full ban on debit card fees, a more far-reaching intervention envisaged in earlier drafts. Even so the move on fees would be a setback for the payments industry, which has warned it would raise banking fees for consumers rather than cut retail prices.
In addition, the draft plan requires payment card schemes and the entities that process transactions to be legally separated – a forced split that would remake the business model for Visa and MasterCard.
The move to regulation comes after years of trench warfare between EU authorities and payment providers, which resulted in pacts with Visa and MasterCard to limit cross-border transaction fees.
The commission proposes a 0.2 per cent ceiling on all consumer debit transactions and a 0.2 per cent cap on credit card transactions, introduced after a two-year transition period where the ceiling applies only to cross-border fees.
According to commission estimates, this cuts EU debit card fees from €4.8 billion to €2.5billion, while credit card fees fall from €5.7billion to €3.5billion. “High [fees] paid by merchants result in higher final prices for goods and services, which are all paid by consumers,” the proposal said.
Anti-trust deals
The cap is broadly based on the proposed anti-trust deals with Visa and MasterCard and aims to give "legal clarity" but it reaches deeper into domestic card markets, where fees can vary widely. Typical debit card fees range from 0.1 per cent in Denmark to 1.6 per cent in Poland. Average credit card rates in Germany stand at 1.8 per cent, compared to 0.5 per cent in France.
A cap would disappoint commission hawks who pushed for an outright ban on debit card fees and broader credit card measures so that premium commercial cards were also covered.
An early commission impact assessment argues that relying on a cap is harder to enforce and risks forcing existing domestic payment schemes with low fees to raise their rates.
Most consumers are unaware of the charges. The commission fears card schemes compete to attract issuing banks with better revenues, which drives fees up rather than down. Consumers are encouraged to take cards with rebates, free insurance and air miles, generating higher fees for banks.
Banks and payment groups attack a cap as heavy-handed. They warn card use would decline, cardholder fees would rise, loyalty benefits would be cut back and retailers would be unlikely to pass on savings.
– Copyright The Financial Times Limited 2013
