Europeans save up to 2 billion euros due to restrictions on bank card fees

Bank cards fees for European merchants and consumers have decreased over the past years thanks to the new EU rules, generating savings of up to €2 billion annually, according to a European Commission report published this week.

The Interchange Fees Regulation entered into force in 2015 to cap the transaction fees that the merchant’s bank must pay when a customer uses their bank card. These interchange fees are paid to the card-issuing bank to cover issues such as handling costs or the risk of fraud.

The Commission assessed the impact of the regulation and concluded that its main objectives have been achieved.

Interchange fees for consumer cards have decreased, bringing smaller charges for card payments and lower prices for consumers.

The report said that the estimated annual consumer cost savings could amount to between €864 million and €1,930 million.

Moreover, the EU executive concluded that the market integration of the retail payment sector, a priority for the Union for the next months, improved through the increased use by retail shops of banks located in other member states, resulting in more cross-border card transactions.

The Commission, however, added that in some areas more data will be needed in order to assess the impact of the regulation.

Given the overall positive results, the EU executive excluded at this stage the option to amend the regulation. The decision was welcomed by Payments Europe, an association of global and European card-based payment solutions.

Its secretary-general, Robrecht Vandormael, said that they continue to promote a competitive European payments market that is based on a “balanced regulatory framework” with consumer protection at the centre.

BEUC, the European Consumer Organisation, was not ready to provide a comment when we contacted them.

Before the rules entered into force, the interchange fees were high, non-transparent and varied significantly among member states, hampering the internal market. For that reason, the regulation set harmonised ceilings for interchange fees for consumer cards in the European Economic Area.

It also introduced business rules and prohibited practices that create market barriers, such as territorial restrictions for the use of cards or the prevention of choice of payment brand or payment application by merchants and consumers.

Increasing card usage

Card-based payments are the most common cashless means of payments in the EU, with nearly 70 billion transactions in 2017, totalling (52%) of all non-cash transactions.

The Commission expects that the COVID-19 will increase further contactless and electronic payments, of which many are card-based, with a possibly permanent shift of 10% of users.

The report noted that the growth in domestic and cross-border card transactions is partly due to the implementation of the regulation, “as they reflect a higher acceptance of cards by merchants, driven in part by lower interchange fees.”

The payments market is however highly concentrated in the hands of few international cards, such as Visa or Mastercard, the Commission said.

Nevertheless, the sector is evolving fast as new innovative payment systems are coming up thanks to startups, and European banks are joining forces to offer new options.

European payment solution

A total of 16 major eurozone banks from Belgium, France, Germany, Spain and the Netherlands announced on Thursday the launch a European Payments Initiative, to offer a unified payment solution for consumers and merchants across Europe.

Commission vice-president for financial services, Valdis Dombrovskis, voiced hope that “banks from other countries, innovative European fintechs and other European payment service providers will join the first 16 members, bringing their own expertise and assets to this ground-breaking project, and making it even more innovative and competitive at the global level”.

The initiative goes along the lines of the Commission’s goals, as the institution will launch later this year a strategy to integrate the retail payments in Europe.

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