Interchange fees for card-based payment transactions

Briefing written by Cécile Remeur.

Card-based payments have a growing share of retail payments, as do non-cash payments in both e-commerce and traditional commerce. There are different types of cards, according to their characteristics (debit and credit) and their holders (consumer and commercial). Card schemes are set up as four-party or three-party schemes providing a framework for schemes’ fees and rules. Using cards for payments generates costs, which are distributed in the form of fees among the participants in the scheme. Interchange fees are designed to cover a portion of these costs and they are paid by the merchant’s bank to the cardholder’s bank, per transaction.
Interchange fees for card-based payment transactions

In the European Union (EU), the payment services framework is currently under review to take account of developments in the payments area. The current review specifically addresses interchange fees for card-based payments in a separate legislative instrument.

The interchange fees associated with four-party schemes raise concerns, for reasons which include their varying levels across the EU, their influence on prices and their impact on new entrants on the card market. So far, antitrust authorities have assessed whether specific agreements were anticompetitive or not, and whether they could be accepted or whether commitments to adapt the schemes would be sufficient to make them compatible.

The proposal for a regulation addresses interchange fees at EU level through regulatory means, providing for capping of the interchange fees for cross-border and domestic transactions (after a transitional period) and laying down schemes’ business rules. Parliament and Council reached agreement on the proposal in December 2014.