Wednesday, Dec. 9 came and went in most parts of the world. In Europe, however, it was a pivotal day in the payments industry. It marked the capping of credit and debit card fees to 0.3 and 0.2 percent on domestic credit and debit transactions, respectively, within the 28-member European Union.
This means merchants and their acquiring banks are paying significantly less fees for domestic credit and debit card transactions while issuing banks will earn a lot less from each swipe of a credit card. One of the reasons for the lowering of EU interchange fees was for the parties involved to ‘pass down’ the savings: From the acquiring banks to the merchants to the consumers.
Time will tell if universal savings takes place.
3 Reasons for Lower EU Interchange Fees
The vote to lower EU interchange fees by the European Commission in 2013 was spurred by three reasons.
1. Transparent Transactions
Previously, EU interchange fees varied wildly. In Germany, for example, the interchange rate was 1.8 percent on Visa transactions opposed to 0.5 percent in France and 0.3 percent in Poland (The previous average interchange percentage throughout the EU was 0.85 percent). Because rates were radically different from country to country, the European Commission felt fees were hidden.
2. Incite Competition and Innovation
Because EU interchange fees are capped at 0.3 (credit) and 0.2 (debit) percent per transaction, consumers can now more clearly judge which credit card (Visa or MasterCard) best suits their needs. It also enables for a more level playing field between credit card brands.
3. Antitrust Laws
A European court judged in 2014 that the current interchange fee structure violated antitrust laws and restricted competition.
How Will Merchants and Acquirers Use the Savings?
The issue of EU Interchange fees was the subject of a whitepaper prepared by Instabill in October, informing our network of European merchants that they would be paying significantly less for credit and debit transactions.
The good folks at Instabill are curious as to what merchants and acquirers – not just our partners – will do with their savings. Please leave your response below.
