08 June 2017

EPC: 18 months on – Impact of the Interchange Fee Regulation on the European Union cards market

IFR covered a good deal more than the interchange fee caps and included substantial changes to the business rules for cards acceptance and processing frameworks. EPC's Peter Jones asks whether implementation been effective and more importantly, have there been unintended consequences?

According to Peter Jones, for credit cards, neither the consumers nor the small and medium sized retailers are winners from the Interchange Fee Regulation (IFR). So far it has not delivered benefits to this group. Most acquiring banks have not passed on the full interchange reduction to their small retailers. The largest merchants, however, have benefitted significantly from the reduced caps and lower costs.

Many credit card issuing banks have now introduced card fees and have cut back on consumer loyalty programs because of the interchange fee caps have impacted their revenues. The UK, the largest credit card market in the European Union, has been most impacted.

The capping of debit card interchange fees has had less impact, as many EU domestic debit schemes already had fees close to IFR levels but debit rates have increased in some countries.

The IFR has removed country boundaries for card acquirers and issuers. However, as the big retailers seek a single acquiring relationship, this is proving detrimental to national acquirers and EU domestic debit schemes, who cannot offer pan-European acceptance.

On a more positive note, the separation of card scheme brand and processing is now in place and some acquirers are actively seeking multi-brand processing bids meeting the IFR’s goal of increased competition.

The IFR also offers the consumer their choice of card brand as they pay. Peter Jones judges that this as costly to implement, and also potentially highly detrimental to the EU’s domestic debit card schemes.

Finally, because merchants lack systems to identify capped and uncapped cards, they cannot yet implement the ‘Honour All Cards’ and surcharging rules.

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