Banks and payment card providers would face caps on the transaction fees they can demand from retailers under European Union plans to rein in charges that have been attacked by regulators as anticompetitive.
The European Commission, the 28-nation EU’s executive arm, will propose that interchange fees paid by retailers on card transactions should be capped at 0.2 percent for debit card payments and 0.3 percent for credit cards, according to draft plans obtained by Bloomberg News. The caps would initially apply to cross-border transactions, and then be expanded to also cover domestic payments after two years.
Retailers have long opposed the extra costs associated with accepting credit and debit cards. Unlike with checks, banks charge fees, known as interchange, to process card payments. The amounts are set by MasterCard Inc. (MA:US) and Visa Inc. (V:US), which own the payment networks and pass the money to the banks.
The fees “restrict competition as they inflate the cost of card acceptance by merchants without leading to benefits for consumers,” according to the document. They result in “higher final prices for goods and services.”
The commission proposal, by seeking to use legislation to limit such fees, marks an expansion in the EU’s assault against the practice. The agency has said that it will publish the plans on July 24. They would require approval by governments and the European Parliament before they take effect.
Visa Europe, MasterCard and Chantal Hughes, a spokeswoman for Michel Barnier, the EU’s financial services chief, declined to comment on the EU plan. Visa Europe Ltd., operator of the EU’s largest payment-card network, proposed a settlement of a similar case that is being reviewed by the European Commission.
EU antitrust regulators have targeted credit- and debit-card fees for a decade, warning that the way the charges are collectively agreed on is anti-competitive. Authorities this year started a probe into Purchase, New York-based MasterCard’s charges on foreign card payments such as when tourists go shopping in the bloc. The company is appealing the outcome of a separate probe into rates on cross-border credit-card payments at the EU’s highest court.
In addition to driving up the costs of goods and services, the EU’s complaints against the fees include that they make it more difficult for other payment card offerings to enter the market, and that they act as a brake on innovation in areas such as mobile payments, according to the document.
The 0.2 percent and 0.3 percent caps are based on levels proposed by Visa and MasterCard during antitrust proceedings and “accepted by the competition authorities as not requiring further action,” according to the document. “They appear as reasonable benchmarks that are practical for the card schemes and payment service providers and also provide legal certainty.”
The rule would cover interchange fees on “all card transactions that are widely used by consumers and therefore difficult to refuse by retailers,” according to the document.
As well as the caps, the EU plans include a relaxation of existing rules that require retailers to accept all cards issued by a provider such as MasterCard or Visa, and rights for retailers to steer customers toward “more efficient payments instruments,” according to the plan. Card providers will also have to provide more fee information, and allow retailers to disclose such data to their customers.
Antitrust probes opened by EU and national authorities “may not lead to sufficiently comprehensive and timely results to unlock the market integration and innovation that are necessary,” according to the document. Despite the investigations, “card schemes operating in the EU currently do not seem willing pro-actively to adjust their practices.”
The EU last week concluded a monthlong market test in which it invited industry comments concessions offered by Visa Europe to end an antitrust investigation. The commission considers such market test-reactions before making a final decision on whether to make a company’s proposals binding.
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