Mastercard and Visa both have proposed to lower interchange in the European Region when a card that was
issued outside the EU is used to purchase something with a merchant operating within the EU. These interregional interchange fees will drop by at least 40%, with the European Commission to determine the final rates based upon feedback to the current proposal. The proposed drop will have bring these interregional fees more in-line with internal EU rates. This significant drop will noticeably impact revenues for the networks. Mastercard in an SEC filing noted that they will take a $650 Million USD charge in 4th quarter due to this issue. The belief, however, is that this is the prudent move and will prevent a wave of litigation from the Commission and merchants. More on this topic from the Wall Street Journal:
Credit-card companies have been locked in disagreements over fees charged to merchants with officials in the U.S. and Europe for years.
The European Commission raised concerns about Mastercard’s interchange fee practices for cross-border transactions in 2007 and it released a statement in 2009 objecting to Visa’s interchange fee practices.
More than 400 U.K. merchants also ultimately have sued Visa since 2013 seeking damages for certain interchange fees, Visa said in its annual filing. As of Sept. 30, Visa said it had reached settlements with more than 75 of those merchants.
In the U.S., Visa and Mastercard were part of a group of firms that agreed to a $6.2 billion settlement with merchants related to card fees.
Under the proposals, interregional interchange fees would be capped at 0.2% of the transaction value for debit cards and 0.3% for credit cards when carried out in person. Fees for online purchases would be capped at 1.15% for debit cards and 1.5% for credit cards.
Transactions where a card isn’t present — or purchases made online — usually have higher rates because they can be riskier and are more complicated, a Visa spokeswoman said.
The European Commission plans to test these proposals in the market before they become permanent, and the new rates would go into effect six months after that decision is made. The commitments would be effective for 5 1/2 years.
If interested, Mercator Advisory Group recently published a report regarding global interchange that can be found here.
Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group
