Cross-Border Interchange Fees on Visa credit cards will be capped

BRUSSEL | Europe's Antitrust Regulator accepts Visa Europe's offer to cap its cross-border interchange fees on credit cards to 0.3% of the value of each transaction. According to the terms of the 4-year deal, Visa Europe would reduce interchange rates in 10 European Union countries including Italy, Luxembourg, the Netherlands, Ireland, and Hungary.


Capped Interchange Fee to Prevent Heavy Fine

Visa Europe anticipated a considerable fine due to, according to the European Commission, a too high interchange fee applicable to cross-border credit card transactions (=transactions whereby consumer and beneficial merchant are not within the same country). An interchange fee is the fee paid by the merchant's bank (acquirer) to the cardholder's bank (issuer) as part of an electronic payment card transaction. The capped interchange fee and accompanying regulation will come into effect in near future. Probably after the European Parliament agrees to the final text of the second Payments Service Directive or PSD2.


Substantial Reduction of Card Fees

The effects of PSD2 regulation will be significant. Implementation of the capped interchange fee would result in a substantial reduction of total debit card fees from €4.8 ($6.5) billion today to €2.5 ($3.4) billion. That is an overall reduction of almost 50%. The total amount of interchange fees paid on credit cards will be reduced by over 60% to €3.5 ($4.7) billion from the current €5.7 ($7.7) billion.


Effect remains to be seen

EC competition commissioner Joaquín Almunia says: "The cap on inter-bank fees for Visa Europe's credit cards and the commitments ensuring cross-border competition are excellent news for European consumers, since the fees paid by retailers end up on their bills." However, what the effect will be for consumers, and merchants, remains to be seen. Last week MasterCard published a report claiming that the capped interchange fees will probably negatively impact card usage. The proposed caps would drive the cost of cards up for consumers. This concern is based on recent practical experience from countries like Spain, where legislation to cap interchange fees resulted in cardholder fees increasing by over 50% and no evidence of retailers passing on savings through lower prices.


Visa Inc to Face Proceedings

The European Commission says it will continue proceedings against Visa Inc. in relation to international fees - such as fees that apply when a tourist from outside the European Economic Area uses his Visa credit card to make a purchase at a merchant within the EEA. These fees are set by Visa Inc. and not by Visa Europe.


Excerpts were taken from Payments Journal, February 19th, 2014

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