Interchange fees on card transactions: is the end nigh at last?
Back in summer 2013, the European Commission announced plans to regulate interchange fees (i.e. where a retailer's bank pays a fee to the customer's bank when a credit or debit card is used to make payment) for card-based transactions.
It has been a slow process, but before Christmas, negotiations between the European Commission, the European Parliament and the Council resulted in the final compromise text for a Regulation on Interchange Fees for Card-Based Payment Transactions (the "MIF Regulation"). This text has now been approved by representatives of both the Council (on 21 January 2015) and MEPs (on 27 January 2015).
In this alerter we look at what has been agreed and what will happen next.
What's new in the compromise text?
Some interesting new features have been agreed by the triologue:
- No distinction will now be made between national and cross-border payments or between credit and debit payments: interchange fees will be capped 6 months after the MIF Regulation comes into force (with a 1 year transition period for universal cards).
- Although three party card schemes (e.g. Amex and Diners) will generally remain out-of-scope, they will now be caught on occasions where payment service providers act as issuers or acquirers (so effectively there are four parties).
- The basic principle remains that interchange fees will be capped at 0.2% for debit cards and 0.3% for credit cards (reflecting levels Visa and Mastercard agreed with the Commission when settling EU competition proceedings), but Member States are being given scope to set even lower caps for domestic debit card transactions if they wish:
- Either a lower per transaction percentage and potentially a fixed maximum amount; or a per transaction fee of no more than €0.05, subject to the usual 0.2% cap and also provided the sum of that payment card scheme's interchange fees does not exceed 0.2% of its annual transaction value for domestic debit cards.
- For the first 5 years only (that end date is a new feature), Member States may allow payment service providers to apply a weighted average interchange fee for domestic debit card transactions. This will be a maximum of 0.2% of the annual average transaction value of all domestic debit card transactions within each payment card scheme, but Member States may set a lower limit.
- The tone of the language has become more measured: emphasis is now given to making interchange fees more consistent by addressing discrepancies between fees and to ensuring the consistent application of European competition rules to interchange fees.
- To aid consumer choice and transparency, payment services providers will now be required to inform consumers in good time of the various brands of payment instrument they have available and their characteristics (functionality, cost and security). Consumers can then elect to have co-branded instruments on their payment card, telecoms, digital or IT device.
- While the MIF Regulation was always due to be reviewed after four years, the compromise text now requires the Commission to consider 11 specific areas in its assessment, including the MIF Regulation's effects on fees and costs, levels of competition, user-friendliness, cross-border effects and the impact of excluding commercial cards from the arrangements. The compromise text also allows the Commission to suggest proposals for legislative amendments, including to the level of the interchange fee caps.
There are still some legislative hurdles to overcome (a vote of the full European Parliament at its plenary session in April and official endorsement by the Council) but the MIF Regulation will come into force on the 20th day following its publication in the EU's Official Journal, with the caps starting to apply 6 months later.
The key question is will publication be delayed in order to co-ordinate with the implementation of the Second Payments Services Directive – expected to be adopted in Summer 2015 and take effect in 2017 – or will the MIF Regulation blaze ahead? The two were conceived and marketed as a single "payments package". A piecemeal introduction could create a period when the fees merchants actually pay would be capped at a low level, but they could still levy surcharges on their customers. Textual changes to the MIF Regulation suggest that a streamlined implementation is still the intention – and co-ordination is regularly achieved in EU legislation - but clarity on this point in the coming weeks would be welcome.
A longer version of this alerter appears in the February 2015 issue of E-Finance & Payments Law & Policy. A PDF copy of that article will appear on our website in due course.
 e.g between the impending Directive and the Regulation that will implement changes to the Markets in Financial Instruments regime