Limits to so-called “inter-regional multilateral interchange fees” will reduce E.U. retailers’ costs, likely benefiting consumers too.
U.S. cardholders traveling in Europe are likely to benefit from new card interchange fee agreements Visa and Mastercard have reached with the European Commission.
The two card companies have agreed to reduce by an average of about 40 percent their fees for cards consumers use in the European Economic Area that have been issued elsewhere. These are their “multilateral interchange fees.” In addition to the European Union, the European Economic Area includes Iceland, Liechtenstein and Norway.
EC Commissioner Margrethe Vestager noted, in a news release issued by the European Commission Monday, “The commitments, which are now binding on Visa and Mastercard, will reduce the costs borne by retailers for accepting payments with cards issued outside the EEA. This, together with our January 2019 decision on Mastercard’s cross-border card payment services, will lead to lower prices for European retailers to do business, ultimately to the benefit of all consumers.”
These “multilateral interchange fees” are the fees a retailer’s bank pays to a cardholder’s bank when the consumer uses a card to make a credit card payment, either in person or online. The retailer’s bank passes on the fee to the retailer, and it is ultimately borne by consumers in the form of higher prices.
So-called “inter-regional interchange fees” are the multilateral fees that apply to card payments made in a region on a card issued outside the region.
Both Visa and Mastercard have agreed to cut these inter-regional interchange fees. This means European retailers’ costs for accepting payments through cards issued outside the European Economic Area, including both credit cards and debit cards, will go down. That could bring down prices for all consumers, including U.S tourists.
The two card issuers have committed to charging no more than 0.3 percent of a transaction’s value in inter-regional interchange fees in the case of credit card transactions that a cardholder enters into physically at a retail location (or 0.2 percent of value in the case of debit card transactions).
They will also charge no more than 1.5 percent of transaction value in the case of purchases made through online payments (or 1.15 percent of transaction value in the case of debit card transactions). Visa and Mastercard would bring down their fees within six months to reflect these maximum limits.
According to a Visa representative, “European merchants and cardholders continue to enjoy the significant benefits of international card payments, both in store and online, which make an important contribution to European economies. Visa has played a central role negotiating a resolution that achieves the best outcome for all parties.”
Back in the U.S., though, the two card issuers have plans to hike up their interchange fees this year, according to a February Wall Street Journal report.