On the 9th of June 2016 entered into force in the EU the new rules on transparency of the costs of payments with debit or credit cards. These rules will allow both consumers and retailers to make more informed choices about the credit cards and the payment solutions they will choose to use. Now all elements of the Interchange Fee Regulation are fully applicable.
The Regulation on Interchange Fees for Card-based Payment Transactions was adopted by the EU Council of Ministers and the European Parliament in 2015, on the basis of a Commission proposal of July 2013. It is aimed at addressing the problem of widely varying and excessive hidden inter-bank fees for card and card-based transactions which are an obstacle to the Single Market and a barrier to innovation.
When a customer pays for a purchase with a credit or debit card, the retailer's bank (the "acquiring bank") pays a fee to the bank that issued the payment card to the consumer (the "issuing bank"). A so-called "interchange fee" is then deducted from the final amount that the retailer receives from the acquiring bank for the transaction.
In order to address the problem of widely varying and excessive interchange fees, the EU adopted the Interchange Fees Regulation in 2015. The first set of rules, applicable since 9 December 2015 introduced caps on interchange fees for consumer debit and credit cards. The final set of rules applicable from 9th of June 2016 aims at allowing the payment card market to work more efficiently. Key changes include:
- Free to choose preferred payment type: Many payment cards have multiple brands, so-called "co-badging" – to name a few examples, in Belgium a single payment card often offers both Bancontact and Maestro as payment options, in Italy it is common to have Bancomat/PagoBancomat and Maestro on a single card or in Denmark Visa and Dankort. The new rules allow consumers to select and retailers to promote the most cost-efficient brand to minimise costs. In particular, retailers will be able to install a preferred brand in their payment terminals, and consumers have the final say when they make the payment. Previously, the preferred brand was typically selected by card issuing banks or card operating schemes, which have an interest in selecting the brand generating the highest interchange fee for them.
- One card for all - The ability to choose the preferred payment type will become even more important: Currently consumers often have to keep multiple cards for different card products issued from their bank. From now on, consumers will be able to require their bank to co-badge a single card (or in the future their mobile phone) with all card products that they issue to the consumer (e.g. Visa, MasterCard, Maestro or American Express). This does not change the bank's right, however, to refuse to offer the customer a given card product (e.g. a premium credit card).
- Better information to consumers - All retailers will have to display the cards they accept in a clear and unequivocal manner at the entrance of the shop and at the till. For online sales, this information must be displayed on the website or other applicable electronic or mobile medium.
- Know what you pay for - Interchange fees are indirectly paid by retailers, who subsequently pass the fee on to all consumers in the form of higher prices. So far, interchange fees have largely been kept in the dark. Banks typically charged retailers a single "blended" fee for card transactions using different brands, although the interchange fee they paid for each type may be different. The new rules will provide transparency: Banks will now have to specify to the retailer the fee for each transaction, unless the retailer explicitly requests a blended fee.