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For more than 20 years, the Commission and national competition authorities have been dealing with the widespread existence of high interchange fees. How do such fees work? Whenever someone buys something with a card, the bank of the retailer pays a fee to the bank of the consumer. The retailer's bank then passes the interchange fee on to the retailer, and the retailer passes on these costs to consumers through higher retail prices. This means these higher prices are borne by all consumers, including those paying with cash.
In our competition investigations, we have found that these interchange fees which are collectively set by banks restrict competition and negatively affect retail prices. In order to address the competition concerns, the Commission has accepted commitments by the main card schemes Visa and MasterCard to charge low multilateral interchange fees for cross-border (and some domestic) transactions.
These ad hoc commitments achieved through our antitrust enforcement cover only certain types of card payments and deal only with specific market players. Interchange fees on most domestic transactions still vary widely across Member States, fragmenting the internal market. Ex ante regulation is therefore required in order to cap multilateral interchange fees for everybody and everywhere in the EU.
The regulation will impose caps for interchange fees applied with respect to the widespread cards which merchants in practice cannot refuse, that is to say, the consumer debit and credit cards.
The cap levels – 0.2 per cent of the value of the transaction for debit cards and 0.3 per cent for credit cards – are those that were accepted in commitments to the Commission from Visa Europe and MasterCard, and also from the Cartes Bancaires in France. They give merchants a share of the benefits of accepting cards instead of cash.
The proposal also ensures that merchants will be able to reject or surcharge any cards whose fees are not regulated. This way, merchants and consumers will receive clear information on the costs of cards. This will allow consumers and merchants to take better-informed decisions on which payment tools to use and will make the market more competitive.
In applying the caps for consumer debit and credit cards, there will be two stages. In a first stage, the caps would apply to cross-border transactions. The interchange caps will after two years be extended to domestic transactions.
This regulation will first and foremost benefit consumers. Today, consumers pay for payment services in a hidden way, through inflated retail prices. This needs to change. We want consumers to be able to make conscious choices about the payment instruments they use, weighing the costs and benefits of these instruments for them.
I am aware that there are vested interests which have been fighting the idea of limiting interchange fees, trying to scare consumers that the impact of the regulation would be higher cardholder fees and no decrease in retail prices. However, there is every reason to believe that consumers will benefit from the disappearance of a hidden cost on their bills, since retailers compete on transparent retail prices.
By contrast, there is absolutely no reason why lower interchange fees should translate into higher cardholder fees, because while interchange fees are hidden, banks compete on transparent cardholder fees.
The limitation of interchange fees will also encourage innovation. Under the current system of high interchange fees banks have no incentives to support new schemes and issue the cards of such new schemes. Breaking up this cosy system between banks and card schemes will allow new providers to enter the market. Such innovative new players, for example in mobile payments, are necessary to put Europe at the forefront of global developments in payments, bringing new services to citizens and benefiting the entire economy.
Additional comments on PSD 2
I welcome, in particular, the clarity provided for the new providers of internet payments. Internet payments are increasingly important for consumers and this is an area which we have been scrutinising – in particular we looked recently into the standardisation undertaken by the European Payment Council. We were worried that it would de facto have created barriers to non-bank players, so we welcomed the decision to stop this activity.
But a regulatory framework was also needed to allow for market access of non-bank players in internet and card payments. Obviously, preventing discrimination against new entrants to the payments market goes hand in hand with increased security, data and consumer protection. This is exactly what this revised Directive provides.
Commissioner Barnier: Remarques introductives sur le paquet paiement