On July 24, 2013, the European Unions' governing body issued proposed revisions to its Payments Services Directive characterized as promoting a more cohesive and consumer friendly payments market. But Visa Europe and MasterCard Worldwide said the European Commission's proposal would harm consumers and merchants in the long run.
Among the changes the EC wants to make to its Payment Services Directive (PSD2) is to cap interchange fees the card brands charge merchants for accepting electronic payments, which is expected to result in the elimination of the practice of merchants surcharging consumers when they use bankcards. "When interchange fees are capped for consumer cards, retailers' costs for card transactions will be substantially reduced and surcharging will no longer be justified," the EC said.
The proposed caps would be set at 0.2 percent and 0.3 percent of the value of the transaction for debit and credit cards, respectively. They would be imposed first on cross-border payments and then on domestic transactions. "These levels have already been accepted by competition authorities for a number of transactions with cards branded MasterCard, Visa and Cartes Bancaires," the EC said.
The commission intends to make exceptions for the American Express Co. and Discover Financial Services' subsidiary Diners Club International. The interchange caps would not apply to the cards of those brands and merchants would be able to surcharge consumers for using AmEx- and Diners-branded credit cards.
The EC said, "The level of the interchange fees varies widely between the member states, which suggests that they do not have a clear justification and create an important barrier between the national payment markets. Capping the interchange fees will reduce costs for retailers and consumers and help to create an EU-wide payments market."
Visa Europe and MasterCard Europe were dubious about the positive effects of the PSD2. Visa Europe President and Chief Executive Officer Peter Ayliffe stated the caps "will be detrimental to the innovation that will support European economic growth." He added that little evidence exists to conclude that the proposals will benefit consumers.
Meanwhile, Javier Perez, President of MasterCard Europe, said, "While we support the Commission's goals, we are concerned that some of the legislative proposals introduced today, such as the caps on interchange fees and restrictions on the Honor-All-Cards Rule, do not support these goals and will actually harm and inconvenience consumers and small merchants, as well as hinder competition and innovation in the European payments landscape."
AmEx countered with a generally positive note. The card brand said the proposals would encourage innovation and also "prevent further entrenchment of the two dominant, inter-bank networks." AmEx acknowledged that the fee caps would not apply to its branded payment cards, but noted that "most transactions in our Global Network Services (GNS) business would fall within the scope of the proposed pricing caps."
The PSD2 also addresses online payment initiation services, such as digital wallet providers. "These are services that operate between the merchant and the purchaser's bank, allowing for cheap and efficient electronic payments without the use of a credit card," the EC said. "These service providers will now be subject to the same high standards of regulation and supervision as all other payment institutions."
Ayliffe said the PSD2 falls short of the EC's goal of leveling the playing field for electronic payment providers by "largely excluding three-party schemes such as American Express, non-card E-and-M-commerce payment solutions and primarily focusing on four-party card systems like Visa Europe." Payment insiders believe it may be several years before the PSD2 becomes law in the EU, likely in modified form.
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