The European Commission (EC) announced that Visa and Mastercard have agreed to extend the current caps on inter-regional interchange fees in the European Economic Area (EEA) until 2029.
An interchange fee is a charge that a merchant pays to the cardholder's bank every time a customer uses a debit or credit card for a transaction. This fee helps cover the costs of handling, fraud protection, and processing the payment. It is typically a percentage of the transaction amount and the fee is part of the overall costs that the merchant pays to their own bank, known as the acquiring bank, which processes the card payment.
In 2014, interchange fees varied widely across European countries. Greece had some of the highest fees for offline transactions, with Visa at 1.6% and Mastercard at 2.1%. In contrast, Finland had some of the lowest fees, with Visa at 0.3% and Mastercard at 0.8%.
2015 was a pivotal year for the payment industry due to the introduction of the Multi-lateral Interchange Fees (#MIF) set under the Interchange Fee Regulation (#IFR). To improve competition in card payments, the Interchange Fee Regulation (IFR) introduced caps on the interchange fees paid to issuing banks: 0.2% for consumer debit cards and 0.3% for consumer credit cards and 1.15% and 1.50% for online transactions. This means, essentially, that merchants pay the same interchange rate regardless of where a consumer uses their debit or credit card within the EEA.
In 2019, Mastercard and Visa expanded the scope and committed to capping interchange fees on transactions involving non-EEA-issued cards and EEA merchants. This is precisely what the object of the news release this week is. Those inter-regional caps were due to expire in November 2024 this year but have now been renewed for a further 5 years.
Before this regulation, the weighted average interchange fee across Europe for debit and credit cards was around 0.65%. Following the IFR implementation, interchange fees in Europe more than halved between 2015 and 2016, aligning with the caps set by the regulation.
Since 2015, the EU's Multi-lateral Interchange Fees (MIF) set under the Interchange Fee Regulation (IFR) primarily cover domestic and intra-regional transactions within the European Economic Area (EEA). This means that merchants pay the same interchange rate, no matter where a consumer uses their debit or credit card within the EEA.
Around the same time, Visa introduced the Cross Border Domestic Interchange Program (CBDIP), allowing merchants within the European Economic Area (EEA) to benefit from capped interchange fees for transactions that are cross-border but treated as domestic. The program is available to registered merchants for transactions at their outlets within the EEA. It applies specifically to secure transactions, which include those processed using EMV chip technology or equivalent secure methods. Under CBDIP, multi-lateral interchange fees (MIFs) are set for cross-border acquired domestic transactions. For...