The European Union is considering new regulations that could result in significant changes to the payment-card market as interchange fees could vanish. According to the EU, the current payment card system is “unknown to consumers and often opaque for merchants,” and the organization hopes to pass new regulation to make the market more competitive.
The move would follow years of ligation between the European regulators and payment card networks Visa and MasterCard, which process the majority of transactions across Europe. With businesses struggling in the region, regulations removing interchange could greatly benefit retailers. For example, in the United Kingdom, every time a customer pays with a debit card, the merchant pays 9p ($.14) on average to the networks and 0.7 percent on credit card transactions.
Consumers and the card networks are coming out against the move following noticeable changes in fees in other markets that scrapped interchange.
Richard Koch, a senior executive at the U.K. Cards Association explains, “Regulation of interchange fees in Australia has been great news for retailers and bad news for banks, but it is consumers who’ve had the worst deal. It is wrong to assume that what looks bad for banks is always good for consumers.”
Australia, however, is not the only market to see consumers not benefit from change. Following the Durbin Amendment and the interchange cap here, the Electronic Payments Coalition found 76 percent of merchants did not pass on the savings of the cap to consumers.
Mercator Advisory Group and PaymentsJournal have documented the ongoing legal battle between the EU, MasterCard, and Visa over interchange fees in recent years. The EU’s current proposed regulations appear to indicate limiting interchange fees may not be sufficient. Governments limiting or removing interchange fees appears to be the global trend the past five years. However as Koch states, these changes come at a cost to more than just the banks. “The British are used to, and like, free banking. The commission’s model would impact on the card issuers’ ability to continue that.”
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