On March 17, an international panel of experts gathered in Brussels to discuss the proposed EU interchange fee regulations that are set to be approved by the Council of Ministers in the next few months. Hosted by the International Alliance for Electronic Payments, experts from France, Austria, Lithuania, the UK, and the USA each outlined different objections to the regulations based on the own countries’ experience and situations.
Interchange fees are the fees levied by banks and payments card networks from merchants and vendors when a consumer uses a payment card to purchase a good or service. The proposed EU regulation will cap these fees at the rate of 0.2 percent of the transaction value for consumer debit cards and at 0.3 percent for consumer credit cards. For consumer debit cards, the regulation also gives flexibility to Member States to define lower percentage caps and impose maximum fee amounts. Payment card networks will also have to separate their operations and infrastructure businesses.
The panel, chaired by Daniel Hannan MEP (European Conservatives and Reformists) consisted of:
- Pierre Garello, Professor of Economics at Aix-Marseille University
- Barbara Kolm, President of the Austrian Economic Center
- Zilvinas Silenas, President of the Lithuanian Free Market Institute
- Matthew Sinclair, Senior Consultant, Europe Economics, and
- Iain Murray, Vice President of the Competitive Enterprise Institute (USA)
The panel considered the various arguments advanced by the proponents of the regulation and concluded, among other things, that:
- The purported €6 billion savings to consumers as a result of the regulation is unlikely to develop as merchants are unlikely to pass through all their savings whereas banks will pass on most of their increased costs
- The net result will likely be an decrease in consumer welfare
- Transparency is unlikely to be advanced as consumers will remain rationally ignorant of how prices are made up
- The proposed regulations ignore unintended consequences and are unlikely to increase efficiency
- The regulations will put more strain on the banking system by withdrawing a revenue stream, and
- Evidence from the USA (which already regulates debit cards in this manner) suggests that the poor will bear the brunt of the increased costs passed through, with a million people forced out of the banking system by increased costs as a result of its regulation.
As I noted, “The experience from the US suggests that these rules will be costly to the people of Europe, and especially to people on minimum wage who find it hard to afford bank fees already. The current arrangement works well and does not present a problem that demands this level of onerous regulation.”
The panel called upon the Council of Ministers to rethink this regulation and return the text to Parliament for conciliation.