European Commission urged to further regulate card fees

The European Commission has adopted a new Digital Finance Package, including Digital Finance and Retail Payments Strategies, and legislative proposals on crypto-assets and digital resilience.

The package aims to boost Europe’s competitiveness and innovation in the financial sector, paving the way for Europe to become a global standard-setter. It aims to give consumers more choice and opportunities in financial services and modern payments, while at the same time ensuring consumer protection and financial stability.

Speaking at the launch of the Retail Payments Strategy for the EU, EuroCommerce Director-General Christian Verschueren said: “The COVID pandemic has accelerated the existing trend for transactions to go online.

At the moment, this inevitably means more use of credit and debit cards. Retailers and other merchants already pay a lot for accepting cards, and even more if a transaction is online. We are seeing, despite very welcome action on some card fees under EU legislation, other unregulated fees rising as much as 150{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} over the last 18 months.

This has cost merchants, already struggling due to COVID, nearly €1 billion extra, and this trend looks likely to continue. We therefore welcome the Commission commitment to promote alternative payment systems. But these will take at least another 2-4 years to roll out, and merchants need urgent action now to address this growing problem.”

Creating a vibrant, competitive and robust European payments market is in everyone’s interest as we have seen with the recent EPI announcements, as well as keeping access open to all alternatives, including cash.

Merchants should therefore be pleased to see the Retail Payments Strategy, and welcome the announced collaboration between European banks in the European Payments Initiative. No doubt they will share the Commission’s determination to get competition in retail payments moving through use of instant payment technology such as SCTInst and new applications for mobile payments, already important as people increasingly move to buying goods and services on their mobile phones.

However, European merchants may well note that while they wait for new alternative systems, the Commission’s decision not to use the review of the Interchange Fee Regulation (IFR), to widen its scope to deal with the ongoing rise in unregulated fees, particularly card scheme fees is an omission.

Recent evidence suggests that these (and other fee increases) may cancel out much of the benefit of the regulation. It is the view of EuroCommerce that this situation further strengthens the position of the two US card schemes, whose market power has been a contributory factor in the failure of at least four earlier EU initiatives. This could happen again, and, as has been seen in other markets with powerful incumbents, regulation may be the only way to allow new competitors to grow.

“As Mrs Vestager said: ‘Competition can help, but it cannot replace the essential role of regulation…. to protect consumers and defend competition’. That is why we, and other sectors such as hospitality and travel, who are facing major challenges to their survival, need regulation – and need it soon – to address the loopholes in the IFR and to give new competitors a chance. And let’s not forget: it is consumers who ultimately foot the bill,” concludes Verschueren.