Wednesday

27th Jul 2016

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.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

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

Column / Brexit Briefing

Brexit plans missing in action

The Brexit referendum has created an almighty political and economic mess, with little sign of a British or EU plan to clean things up.

Opinion

Brexit seed was planted in 2004

The clause allowing a member state to leave the EU was introduced at a time of prosperity. EU leaders should not repeat the mistake and use the crisis to reinforce eurozone membership.

Stakeholders' Highlights

  1. Belgrade Security ForumMigration, Security and Solidarity within Global Disorder: Academic Event 2016
  2. GoogleHow Google Fights Piracy: Creating Value While Fighting Piracy
  3. EJC"My Visit to Israel" - Opinion by MEP Lopez Aguilar, Chair of the EP Working Group on Antisemitism
  4. World VisionChildren Migrating, Out of School and at Work as Hunger Deepens in Southern Africa
  5. European Healthy Lifestyle AllianceStand-Up (and Exercise) to Prevent Chronic Diseases
  6. Centre Maurits CoppietersLaunches a Real-time News Hub Specialised in EU Stakeholders
  7. Dialogue PlatformFethullah Gulen Calls for International Probe Into Turkey Coup Allegations
  8. GoogleEU-US Privacy Shield: Restoring Faith in Data Flows and Transatlantic Relations
  9. World VisionWorld Leaders & Youth Advocates Launch Partnership to End Violence Vs. Children
  10. Counter BalanceReport: Institutionalised Corruption in Romania's Third Largest Company
  11. Access NowEuropol Supports Encryption. We Can Relax Now… Right?
  12. GoogleLearn about Google's projects across Europe on Twitter @GoogleBrussels