EC Threatens To Cap Or Scrap Retailers’ Card Payment Fees

Brits who are used to free banking and cash withdrawals could soon be affected by planned reforms across Europe.

Last year, the European Commission released a Green Paper that encouraged regulating the financial system in order to make the market more competitive. The new reforms may require consumers to pay a fee when using a debit or credit card to make a payment or when used at at cash points, which is something the British aren’t necessary accustomed to doing.

“The British are used to, and like, free banking,” Richard Koch, senior executive at the Cards Association, said to The Telegraph. “The commission’s model would impact on the card issuers’ ability to continue that.”

The Green Paper suggested that the current system of charging retailers accepting card payment to be either capped or omitted completely. The costs that the merchants pay are called interchange fees and these prices vary across Europe. On average, a British shopper owner will pay 9 pence for every customer who pays by debit card, and about 70 pence or higher for credit cards.

In the areas that have imposed caps on interchange fees, the extra money goes towards lowering prices for customers and services as well as innovation. In areas that have not been capped, the money is put solely towards banking profits.

Europe is waiting to receive a White Paper issued by the EC in the next month, which will explain the capping fee decisions.

The interchange fees help card issuers with the costs of the distribution of cards as well as the high risk involved with transactions. If a customer makes a payment with a credit card and something goes array or they are unable to pay, the card issuer and retailers are the ones who are losing money. They are also the ones who suffer from fraudulent payments.

If the card issuers weren’t compensated with interchange fees, it is likely they would raise standards and issue fewer cards. The retailers are also benefiting from card payments because there are often interest-free periods which enabled customers to spend more at their store. These interchange fees are the source of funding for many of the rewards that customers receive on credit cards.

If the fees are capped or eliminated entirely, it is not guaranteed that consumers will benefit from lowered product prices. The absence of interchange fees may even cause retailers’ annual fees to increase, which could be worse for consumers and banks.

To read the full article at The Telegraph click here.