Thursday

1st Sep 2016

EU commission takes aim at credit card fees

Mastercard was in the EU's line of fire on Wednesday (24 July), after the bloc's internal market chief accused the credit-card giant of waging a "mad" lobbying campaign against plans to cap fees for using credit and debit cards.

Unveiling proposals that would cap charges for card payments to 0.2 percent and 0.3 percent for debit and credit cards respectively, Michel Barnier said Mastercard had mounted a campaign of disinformation against the proposals and him personally in the French media.

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  • Visa and Mastercard dominate the EU's €130 billion payments market (Photo: MyTudut)

"I can understand why a big American company would want to defend their interests… but I found their campaign quite counterproductive and unacceptable," he said.

The new regime could be worth up to €6 billion each year in cost-savings for retailers, and should translate into lower consumer prices, according to the EU commission.

Meanwhile, banning retailers from imposing extra charges for using their card would also save consumers €730 million annually.

Whenever someone pays for something by card, the retailer's bank pays a interchange fee, often up to 2 percent of the purchase price, to the bank used by the cardholder's bank.

The EU payments market, which is dominated by Visa Europe and Mastercard, is worth €130 billion per year, over 1 percent of the bloc's GDP.

The commission proposal also includes provisions for a legal split between payment card systems and the companies that process transactions, a move it claims would boost competition.

The EU is hoping that the legislation will bring an end to years of anti-trust proceedings against Visa and Mastercard in an attempt to force them to lower fees.

EU competition commissioner Joaquin Almunia commented that consumers were actively "encouraged to use the cards that generate the highest fees" and that consumers paying with cash were subsidising card users.

The likes of Poland and Hungary, where interchange fees are up to 1 percent, are expected to see the biggest drop in charges.

In statements responded to the proposals, Visa and Mastercard claimed that lowering interchange fees would lead to higher charges for owning credit cards, a charge rejected by the commissioners.

"Countries with the lowest MIFs (multilateral interchange fees) have more competition and lower costs," said Barnier. "MIFs are just a device to make money," he added.

 

For her part, Monique Goyens, director general of BEUC, welcomed the news commenting that "slashing the level of interchange fees should boost innovation and competition."

 

“That unfair surcharges are to become a thing of the past is good news. Companies have shamelessly used them to reap extra profit from people paying by card. Such practices rightly annoyed Europe’s consumers as they essentially punished them when making a payment,” she added.

Meanwhile, Ian Cheshire Group CEO of retail giant Kingfisher described the move as "a striking example of the European Union at its best: practically addressing a pan-European issue, empowering consumers and fostering growth".

The news pits MEPs and ministers in a race against time to reach agreement on the legislation before the end of the current term.

Barnier said it was "very difficult to predict" whether MEPs and member states would be able to strike a deal before next May's European elections. But he described governments as "generally" and the parliament as "definitely motivated" to reach a swift agreement.

If agreed by MEPs and ministers, the caps would apply first to cross-border payments, before entering into force for all domestic payments after a 22-month transition period.

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