Wednesday 24th July, 2013

The European Commission revealed plans to update the Payment Services Directive (PSD) across the EU, which includes a proposed regulation for interchange fees for card-based payment transactions.

The revised directive brings a number of new improvements to the EU payment market, introducing new 'payment initiation services' that operate between the merchant and the purchaser's bank, allowing for electronic payments without the use of a credit card.

Consumers will be better protected against fraud, possible abuses and payment incidents (e.g. in case of disputed and incorrectly executed payment transactions).

Internal Market and Services Commissioner Michel Barnier said: "Today, the payment market in the EU is fragmented and expensive with a cost of more than 1% of EU GDP or €130 billion a year. These are costs our economy cannot afford. Our proposal will promote the digital single market by making internet payments cheaper and safer, both for retailers and consumers. And the proposed changes to interchange fees will remove an important barrier between national payment markets and finally put an end to the unjustified high level of these fees."

Vice President Joaquín Almunia added: "The interchange fees paid by retailers end up on consumers' bills. Not only are consumers generally unaware of this, they are even encouraged through reward systems to use the cards that provide their banks with the highest revenues. Complementing the enforcement of antitrust rules, the regulation capping interchange fees will prevent excessive levels of these fees across the board.”

The Regulation on interchange fees, combined with the revised PSD, will introduce maximum levels of interchange fees for transactions based on consumer debit and credit cards and ban surcharges on these types of cards.

During a transition period of 22 months, caps on interchange fees for debit and credit cards will apply to cross-border transactions, i.e. when a consumer uses his card in another country, or when a retailer uses a bank in another country. For the cards that are not subject to the caps (mainly commercial cards issued to businesses and three party schemes such as American Express or Diners), retailers will be able to surcharge for them or to refuse to accept them.

Interchange fees are included in the retailers' costs of receiving card payments and are ultimately paid by consumers through higher retail prices. They are unseen by consumers but cost retailers and ultimately consumers tens of billions of euros every year.