Capping interchange – not the future for electronic payments
By Javier Perez
In an article Credit card companies are pocketing dazzling profits published on EUobserver on 14 February, MEPs Bas Eickhout, Sven Giegold and Jean Paul Besset present a number of arguments related to the future regulation of electronic payments.
Although it outlines a politically attractive theory, their arguments are not grounded in the real life experience of European consumers.
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Firstly, the electronic payment system offers incredible benefits to consumers, retailers, businesses and governments. Like any valuable service, with an advanced technology behind it, it comes at a cost.
Therefore, the idea behind interchange fees is to balance the interests of both the consumer and merchant and their respective banks.
In this context, one widely repeated misconception is that card schemes like MasterCard receive money from interchange. This is not true; this small fee goes solely from the acquirer (e.g. retailer’s bank) to the issuing (consumer’s) bank. This is because the latter bears most of the costs of the transaction. Consumers contribute their share of the cost too, e.g. through a yearly fee for their card.
Of course, it is in MasterCard’s interest to get the interchange levels right. We want to ensure that all those who benefit continue to use electronic payments, and this means each paying their fair share for the service. This is why the interchange level should be neither too high nor too low.
While we share the broad objectives of the European Commission’s proposal we have consistently expressed our concern that the proposed solution of inflexible interchange caps (or indeed scrapping them for debit cards as suggested by Eickhout, Giegold and Besset) would drive the cost of cards up for consumers.
The current proposal effectively means shifting the retailers’ contribution to the electronic payments system onto consumers.
Our doubts also stem from the absence of any justification for proposing “one-size-fits-all” fees across over 30 countries, where market conditions vary considerably.
Last autumn, the French Senate opposed the Commission’s proposal exactly for those reasons.
There is no doubt that the idea of capping fees is politically attractive – but it makes no sense if, in the end, it favours retailers over consumers.
Eickhout, Giegold and Besset also advocate scrapping the so-called Honour All Cards Rule and allowing retailers to choose which card they accept. However, they do not touch on what this would mean for consumers.
In reality, the number one quality consumers look for in payments cards is the certainty they can use them wherever they go around the world.
Javier Perez is President of MasterCard Europe