PSD2 Caps Interchange Fees in EU

July 25, 2013

The European Commission yesterday officially announced the long-awaited second Payment Services Directive (PSD2) for online payments. The revision to the original PSD, implemented in 2007, aims to simplify a fragmented payments market in the EU by promoting the “digital single market.” PSD2 also caps interchange fees. Additionally, under the new PSD, third parties will be able to enter the Internet payments market, hopefully enabling less costly alternatives to using credit cards online.

The new PSD will be phased in over nearly two years. Interchange caps of .2 percent of the transaction value for debit cards and .3 percent for credit cards will begin to apply to cross-border transactions immediately and domestic transactions after the transition period. Some cards (mainly commercial cards, American Express and Diners Club) are not subject to the caps, but retailers will have the right to surcharge customers using them or refuse to accept the cards.

“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,” said Joaquín Almunia, vice president of the European Commission. “Complementing the enforcement of antitrust rules, the regulation capping interchange fees will prevent excessive levels of these fees across the board. A level playing field will be created for payment services providers, new players will be able to enter the market and offer innovative services, retailers will make big savings by paying lower fees to their banks and consumers will benefit through lower retail prices.”