BLOG | MasterCard Europe has agreed to lower its average domestic interchange fee in the Netherlands from 0.9% to 0.3% in the coming two years. Dutch merchants accepting MasterCard payments are likely to benefit since lower costs could result in lower credit card merchant fees. By lowering its interchange fees, MasterCard has prevented a formal investigation by the Dutch Authority for Consumer & Markets.
Investigation on Interchange Fees
Until February this year, the Dutch Authority for Consumer and Markets had the intention to start a formal investigation on the Dutch interchange fees set by MasterCard for processing and settlement of domestic credit card transactions. A domestic transaction refers to a transaction whereby the cardholder and merchant resides in the same country.
In response, MasterCard proposed to lower its Dutch 'interbank fees' under the condition the investigation was waived. Both parties agreed last February, so MasterCard will gradually reduce its interchange fees in the coming 2 years. The first 'price-reduction' is coming up and will take effect as of June 1st, 2014.
MasterCard Interchange Fees in the Netherlands
The Dutch domestic interchange fee is a percentage of the transaction amount - for Dutch credit card transactions roughly between 0.80% - 1.70%. These interchange or 'interbank' fees are charged by the cardholders’ bank to the merchant’s acquiring bank.
The merchant acquirer processes credit card payments and settles payments with merchants. The interchange fees are passed on by the Acquirer to the merchant and 'absorbed' in merchant commission rates. This 'interbank' fee represents a large share (50-70%) of the commission a merchant pays for credit card processing, roughly between 1.5% - 2.5%.
Currently MasterCard has defined more than 40 different interchange tariffs applicable to Dutch domestic transactions. The rate depends on card type (consumer vs business use) and whether the card is used for contactless, EMV (chip) or eCommerce transactions. Click here for a complete overview of applicable interbank rates for intra-country MasterCard transactions in the Netherlands, applicable at this moment.
MasterCard has agreed to lower the average interbank rate, which leaves room to set different interchange rates for Point-of-Sale (in-store) and eCommerce transactions. At this moment the new MasterCard interchange rates for eCommerce and Mail Order/ Telephone Order (MO/TO) transactions seem not to have been published yet.
All domestic MasterCard consumer card transactions affected
The reduced interchange fee will be applied to all domestic MasterCard consumer card transactions and will also affect MasterCard Card-Not-Present or eCommerce transactions, whether or not protected by MasterCard SecureCode. MasterCard transactions performed with so-called 'premium' and business cards (assumed to have a minor market share in the Netherlands, 10-15%) are excluded from the agreement.
Phased Fee Reduction
As of June 1st, 2014, MasterCard will gradually lower the average domestic fee. As of that date, the tariff will be reduced from 0.9% to an average of 0.7% of the total transaction amount. By 1 January 2015, the interchange fee will be lowered to 0.5%, and per 1 January 2016 once more to an average of 0.3%. To make it more tangible: for a MasterCard transaction of 100 euro the merchant acquirer now would pay 90 eurocent per transaction to the card issuer. By the beginning of 2016 this would only be 30 eurocent, a substantial drop of more than 60%.
Merchant Commission Rates will be impacted
The lowered interchange rates will most probably impact the commission rates charged to Dutch merchants in the coming years. The competitive Merchant Acquiring Landscape in the Netherlands, with Worldline, European Merchant Services, PaySquare, Adyen and more, will probably drive prices down in future. At what speed and to what extend is to be seen. For example, online merchants attracting shoppers from abroad will not be able to benefit on those specific cross-border transactions. Online purchases performed with premium or commercial MasterCard cards also are not applicable for lower interchange rates. Nevertheless, for the majority of Dutch merchants these domestic transactions reflect the mass of MasterCard transactions, and therefore it is expected that the MasterCard credit card rates in the Netherlands drop over time.
Visa Credit Card Rates
In the beginning of this year it became clear that Visa Europe made a 4-year deal with Europe's Antitrust Regulator to cap its cross-border interchange fee on credit cards to 0.3% of the transaction value. This deal also impacts the domestic tariffs in 10 European countries, including Italy, Ireland and the Netherlands. In other words, also Visa credit card rates are most likely to drop in the coming years. For more information please revert to the news article 'Cross-Border Interchange Fees on Visa credit cards will be capped' and the About-Payments blog article.
Article by Erik van den Heuvel, About-Payments, May 13th, 2014. Any use of this article without About-Payments' express written consent is prohibited.