Fabian Demicoli

Card transaction fees to be capped under EU proposal


Lucrative
fees to process card transactions are to be capped under a proposal by the
European Union's executive aiming to draw a line under a battle with payment
groups such as Visa Europe and MasterCard.

Under a draft
European Commission plan, a ceiling would be introduced for charges on all
consumer debit and credit card transactions, scaling back a multi billion euro
revenue stream for EU banks.

The measure stops
short of a full ban on debit card fees, a more far-reaching intervention
envisaged in earlier drafts. Even so, the assault on fees will be a setback for
the payments industry, which has warned it will raise banking fees for
consumers rather than cut retail prices.

In addition, the
draft plan requires payment card schemes and the entities that process
transactions to be legally separated – a forced split that would remake the
business model for the main payment groups.

The Commission
proposes a 0.2 per cent ceiling on all consumer debit transactions and 0.3per
cent cap on credit card transactions, introduced after a two-year transition
period where the ceiling applies only to cross-border fees.

According to
Commission estimates, this will cut total EU debit card fees from around €4.8bn
to €2.5bn, and credit card fees from €5.7bn to €3.5bn.

The cap is broadly
based on the proposed antitrust deals with Visa and MasterCard and aims to give
"legal clarity" but it reaches deeper into domestic card markets, where fees
can vary dramatically. Typical debit card fees range from 0.1 per cent in
Denmark to 1.6 per cent in Poland. Average credit card rates in Germany stand
at 1.8 per cent, compared to 0.5 per cent in France.

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