Thursday

17th Aug 2017

Letter

Capping interchange – not the future for electronic payments

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.

Thank you for reading EUobserver!

Subscribe now and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

  • The service comes at a cost (Photo: MyTudut)

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

MEPs back cap on credit card fees

MEPs have backed plans to cap card payment fees charged to shops by credit card giants Mastercard and Visa in a move aimed at saving €6 billion per year.

EU needs lasting solution to refugee crisis

If we continue with the failed approach of the last two years then this could become a systemic crisis that threatens the EU itself, writes Gianni Pittella.

Young Poles can halt Kaczynski’s illiberal march

Debates are ongoing on whether president Duda vetoing two out of three bills on judicial reform should be seen as the opposition's success. But the protests brought about another, much less disputed success.

Column / Brexit Briefing

The return of the chlorinated chicken

Britain has only just started on the path towards a post-Brexit trade deal with the US, but you can already see the same all-too-familiar disagreements.

Stop blaming Trump for Poland’s democratic crisis

If you were to judge events purely on the US media's headlines, you would be forgiven for wondering if the Polish government had anything to do with its recent controversial judicial reforms.

News in Brief

  1. Mixed Irish reactions to post-Brexit border proposal
  2. European Union returns to 2 percent growth
  3. Russian power most feared in Europe
  4. Ireland continues to refuse €13 billion in back taxes from Apple
  5. UK unemployment lowest since 1975
  6. Europe facing 'explosive cocktail' in its backyard, report warns
  7. Danish police to investigate misuse of EU fishing rules
  8. German constitutional court questions ECB's €2tn spending

Stakeholders' Highlights

  1. European Healthy Lifestyle AllianceDoes Genetics Explain Why So Few of Us Have an Ideal Cardiovascular Health?
  2. EU2017EEFuture-Themed Digital Painting Competition Welcomes Artists - Deadline 31 Aug
  3. ACCABusinesses Must Grip Ethics and Trust in the Digital Age
  4. European Jewish CongressEJC Welcomes European Court of Justice's Decision to Keep Hamas on Terror List
  5. UNICEFReport: Children on the Move From Africa Do Not First Aim to Go to Europe
  6. Centre Maurits CoppietersWe Need Democratic and Transparent Free Trade Agreements Says MEP Jordi Solé
  7. Counter BalanceOut for Summer, Ep. 2: EIB Promoting Development in Egypt - At What Cost?
  8. EU2017EELocal Leaders Push for Local and Regional Targets to Address Climate Change
  9. European Healthy Lifestyle AllianceMore Women Than Men Have Died From Heart Disease in Past 30 Years
  10. European Jewish CongressJean-Marie Le Pen Faces Trial for Oven Comments About Jewish Singer
  11. ACCAAnnounces Belt & Road Research at Shanghai Conference
  12. ECPAFood Waste in the Field Can Double Without Crop Protection. #WithOrWithout #Pesticides