In November 2018, the Visa and Mastercard networks offered to reduce inter-regional multilateral interchange fees (MIFs) in Europe by at least 40% in response to the European Commission’s competition concerns. These fees apply to payments made in the European Economic Area (EEA) with consumer debit or credit cards issued outside the EEA. An example of such a payment would be an American tourist using a Visa or Mastercard card to pay for a restaurant bill in Belgium.
Visa and Mastercard propose capping the interchange fees applicable to specific transactions as follows:
For card payments made by a cardholder in a store (transactions that involve the physical use of a card)
- 0.2% of the transaction value for debit cards
- 0.3% of the transaction value for credit cards
For online payments (transactions that do not involve the physical use of a card)
- 1.15% of the transaction value for debit cards
- 1.50% of the transaction value for credit cards.
The Commission has asked for comments on these proposals and will assess whether they address its competition concerns. If it decides that they do, the reduction in fees will take place within six months of its decision, and the new fee scales would be legally binding. They would apply for a period of five years and six months.
If the fee scales above come into force, for transactions in which a card is used physically, interchange fees would be the same whether the card originates from inside or outside the EEA. The Eurocommerce Federation has approved this commitment, but has criticized the difference in interchange rates for e-commerce transactions. “No such distinction is made for cards issued in the EU… We therefore cannot understand why merchants should pay more for a perceived risk that can only result from the inability of card issuers to implement adequate fraud prevention measures,” a spokesperson for the group, which represents Carrefour, Marks & Spencer, Lidl and Metro, told Reuters.
BEUC, the European Consumer Organisation, wanted the reduction in interchange rates to benefit consumers. But it must first be passed on to the merchants! The issue of retrocessions is not addressed under the same terms in the electronic invoicing structure negotiated between the merchant and its bank. In fact, in recent years, some merchants have implemented “Interchange Plus Pricing” fee structures. For them, all they will have to do will be to verify that the new interchange rate is correctly applied to these transactions.
But for merchants with a fee structure that covers all types of transactions at a single rate, it is advisable to renegotiate downwards, especially if they process a lot of cards from non-European customers. This mainly concerns luxury retailers, air carriers and car rental companies.
Winning a battle, but not the war
There’s no doubt that an important step has just been taken in the reduction of interchange fees on card payments in Europe. This is in contrast to the situation on the other side of the Atlantic, where networks have just announced further increases. Nevertheless, the European Commission’s efforts need to go further. First, it needs to bridge the gap between point-of-sale transactions and those conducted in the e-commerce sphere that has been created by Visa’s and Mastercard’s proposal. Second, it also needs to focus on other charges that have recently experienced inexplicable increases:
- Commercial cards
- Network fees, which have been increased each year by Visa and Mastercard and are ultimately borne by the merchant
- The costs of three corner schemes such as American Express.