Brussels, 9 June 2016 European Commission - Fact Sheet - Antitrust: Regulation on Interchange Fees
The Regulation on Interchange Fees for Card-based payment transactions entered into force in June 2015. It is aimed at addressing the widely varying and excessive hidden interchange fees which are an obstacle to the Single Market and a barrier to innovation.
The Regulation caps the interchange fees for the most widely-used cards and imposes transparency obligations on banks and retailers to improve the functioning of the payment market for all cards. The rules on interchange fee caps have applied since December 2015, while the rules on transparency apply from 9 June 2016.
What are interchange fees?
Each time a consumer uses a credit, debit or prepaid card to buy something in a shop or online, the retailer's bank (the “acquiring bank”) pays a fee called "interchange fee" to the consumer's bank that issued the card (the “issuing bank”). As retailers generally incorporate interchange fees in the prices they charge consumers, these fees increase the retail prices of goods and services.
Interchange fees are normally set by operators of payment card schemes, such as Visa or MasterCard, or the banking community. Retailers have no possibility to influence the level of the fees, as they are not involved in the process.
Different types of cards are usually subject to different levels of interchange fees. For example, credit cards usually carry higher interchange fees than debit cards. These cards are thus more expensive for retailers to accept. Before the entry into force of the Regulation on interchange fees, interchange fee levels also used to vary a lot between Member States.
When a consumer pays a retailer by card, several other actors are involved in the payment transaction. Most schemes operate as a so-called 'four party' card scheme:
What was the problem with interchange fees?
Usually, competition leads to lower prices since companies compete by offering lower prices than their competitors. In the case of interchange fees, the opposite occurs. Since issuing banks benefit from interchange fee revenues, card schemes compete for the issuing banks by offering higherinterchange fees. These fees are a cost for retailers which increase the price of their products.Interchange fees are therefore, indirectly, paid by consumers. Consumers and retailers are often unaware of the level of these fees. In addition, cardholders are encouraged through rewards offered by their bank to use cards that generate higher fees for the bank. This has consequences for both retailers and consumers:
If a retailer refuses commonly-used cards, there is a risk that consumers would choose to go to its competitors. Individual retailers tend thus to accept high costs for card payments to keep and grow their sales.
Retailers recover higher costs due to ever increasing interchange fees by increasing retail prices. As a result, the prices increase for all consumers, including those who pay cash or use cheaper payment cards, because the higher fees of more expensive cards are spread out and passed on to all.
The Regulation on interchange fees for card-based payment transactions aims at changing this situation to the benefit of retailers and consumers.
page source http://europa.eu/rapid/
