EU Agrees to Interchange Legislation Including Caps

Dec. 22, 2014

EU Agrees to Interchange Legislation Including Caps The most recent chapter in efforts to cap interchange fees in Europe ended last week when the European legislators reached an agreement in principle with member nations capping cross-border interchange fees at 0.2 percent per debit-card transaction and 0.3 percent per credit-card transaction. EU officials hailed the legislation, which hasn’t received formal approval by the European Parliament and Council but is expected to in 2015, as a win for consumers.

“This legislation is good for consumers, good for business, and good for Europe,” Competition Commissioner Margrethe Vestager said. “It will lead to lower prices and visibility of costs for consumers. It reduces a ‘tax’ levied on business by banks in the form of interchange fees, and releases the brakes that have so far held back innovation.”

Though interchange in Europe was generally lower than the U.S. even before the agreement, the effect of the accord will be similar to what happened in the U.S. in the wake of the Durbin Amendment capping debit interchange, according to Michael Liquornik, president of consultancy Fin-Serv Advisors.

“The impact of capping Interchange at these levels will be severely negative for EU issuers.  Very similar to what happened in the US with Durbin, where the issuers lost millions in interchange revenue,” Liquornik said. “These lost revenues will have to be passed on in one way or another—increased banking fees, the end of free checking, reduction in rewards, etc.”

For merchants, however, the result is largely positive, especially for merchants already selling cross-border in the EU.

“For merchants that sell there already it’s important and this allows them to expand within the EU at a lower cost,” said Ralph Dangelmaier, CEO of online gateway provider BlueSnap. “But, in the U.S., for example, 73 percent of merchants do not sell into the EU today. This may be another influence to sell there but certainly not a tipping point in selling into the EU.  Many other issues stand in front of them before interchange costs.”

Liquornik agreed, noting that Europe was a low-cost jurisdiction anyway. The complication for cross-border merchants “will be local entities, taxation, etc., so some of the benefits may be diluted depending on scale and complexity of the business.”