Visa and Mastercard Voluntarily Reducing Inter-regional Interchange Fees by More Than 40% in Europe

04th December 2018
Contributor:
Brendan Doyle
Brendan Doyle

Visa and Mastercard are close to agreeing a deal with the European Commission (EC) to lower interchange fees charged to EU merchants accepting cards from outside the EU. The proposed caps vary between card present and card not present, as well as between credit and debit transactions, but generally bring these fees in line with Interchange Fee Regulation (IFR) rates.

The card networks have proposed caps on inter-regional interchange fees as follows:

 

Debit Credit
Card Present 0.2% 0.3%
Card Not Present 1.15%

1.5%

Issues

The large difference between online and offline caps is not easy to justify, as there is no such distinction made for domestic or intra-regional transactions. Under this arrangement, eCommerce merchants would face an uneven playing field that may stifle growth of online sales. Additionally, commercial cards have been excluded from this proposal even though a significant proportion of foreign spend in the EU is likely to come from commercial cards.

As well as the above issues, the deal would mean that for many transactions, network fees would consistently be larger than interchange. If they were to remain unregulated, network fees could continue to grow to ‘replace’ interchange, as we have already seen following the IFR in 2015 with Visa network fees increasing by more than 100%.

Terms of the Deal

Inter-regional card fees have been under regulatory scrutiny recently, but this deal would mean the EC end their probe into the anti-competitive nature of the fees. The offer, which would be binding for 5 years and 6 months, is now open to a one-month consultation period before the EC decide whether these proposals address the competition concerns.

The experience of other developed economies (such as Australia and Canada) with voluntary interchange reductions have been troublesome, with promised reductions not always coming to pass. However, if the deal is put in place – likely around Fall next year – and either network breaks the agreement, then the EC can fine the offender up to 10% of their worldwide turnover.

These caps are a step in the right direction, but European merchants or merchants with operations in Europe need to make sure they receive the full benefit of this fee reduction. Furthermore, as a fast-growing segment, it is important that merchants operating online are not penalized for selling through this channel.

Brendan Doyle | CMSPI CEO

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