The European Commission announced a legislative package that would revise the Payments Services Directive and adopt new legislation on payment card fees.
“Our proposal will promote the digital single market by making Internet payments cheaper and safer, both for retailers and consumers,” explained Michel Barnier, internal market and services commissioner. “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.”
The proposed revisions to the Payments Service Directive extend regulation to Internet payment services with low costs.
“These service providers will now be subject to the same high standards of regulation and supervision as all other payment institutions,” stated the Commission.
As speculated last week, the Commission has proposed capping interchange fees, including domestic card transactions, at 0.2 percent for debit cards and 0.3 percent for credit cards. If approved, the cap will be introduced in two phases: First the cap will apply to cross-border transactions, and after two years, the second phase will mean domestic transactions are applicable.
The Commission proposes to ban merchant surcharges on almost all cards subject to these caps. Yet in a striking development, the EC said it would, however, allow them on the cards issued by three-party systems, such as American Express.
American Express commented, “Unlike the two dominant networks, American Express does not set prices collectively or operate on the basis of inter-bank arrangements. Authorities around the world, including those in Europe, have not found our pricing practices to be anti-competitive and have not challenged our licensing arrangements. We believe that any new regulatory framework should recognize fundamental differences in business models and market positions.”
The EC proposes that banks and other payment companies improve security solutions for online payments by developing identity authentication features to process payments. The Commission is looking to increase consumer protection as well. The draft requests consumers only risk limited losses of up to €50, as opposed to the current policy of €150, in the event of unauthorized card payments.
The EC claims the interchange fee caps will help retailers across the 28-nation landscape save up to €6 billion each year. With each customer card transaction, retailers are required to pay a fee to banks. The EC explained that once the Directive is in place, the reduction in merchant fees would be followed by lower prices in consumer products and services. Payment card schemes such as MasterCard and Visa, have publicly argued that fee caps would harm consumers due to the possibility of higher checking account and other fees.
“The interchange fees paid by retailers end up on consumers’ bills,” EU Competition Commissioner Joaquin Almunia stated. “This needs to change.”
According to Bloomberg, MasterCard appealed the proposal, and stated in an email, “Based on the press statements and legislative proposals released by the commission today, we are concerned about the harm these proposals will cause to consumers and small merchants in the EU.”
No decisions have been made yet, as the proposal awaits approval from the European Parliament, and most of the 28 EU countries that have yet to vote.
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