In 2015, the European Union capped the price of interchange fees, the charges levied on card payments. The European Commission recently ruled that there was no reason to lower their ceiling again, the aim being to secure the revenues received by banks.
Financing the colossal investments in the European interbank project
In March 2015, the EU adopted the regulation "on interchange fees for card-related payment transactions" or IFR (Interchange Fee Regulation) to frame payment services markets and enable fair competition across the Union. One of the main levers proposed was the capping of interchange fees, which represent a proportion of the fees paid by merchants to their bank when receiving a card payment. The objective was clear: to cap the level of these fees for the benefit of end consumers.
5 years later, a study commissioned by the MasterCard payment network from Edgar, Dunn & Company shows that the implementation of this European regulation has indeed led to a reduction in interchange fees paid by merchants, to the tune of 5.14 billion euros per year across the EU. There is no evidence, however, that merchants have passed on this reduction in their selling prices, the study points out.
Following the presentation of a follow-up study to the European Parliament concluding that the objectives had been achieved, the Commission decided that it was not necessary "to initiate a legislative proposal to revise the regulation". In other words, the EU institution refuses to lower interchange fee ceilings again, as requested by several consumer and retail lobbies. In its view, this is an essential condition for convincing banks to embark on the EPI project, which requires substantial investment.
Consequences for European card issuers
While the European Commission's decision should secure nearly 7 billion euros a year in revenue for banks and enable them to roll out their infrastructure projects, it will have serious consequences for European card issuers. As the study by Edgar, Dunn & Company shows, their loss of revenue is estimated at 5.14 billion euros in 2018 compared with 2014, while transactions over this period have exploded by 750 billion euros (+35%).
The effects of capping interchange fees are still difficult to measure. Indeed, only large retailers with high payment volumes seem to have benefited. For small merchants and consumers alike, however, the cap would have made little difference.