First reflections on the report on Multi-Interchange Fee Regulation

On 11 March 2020, the European Commission published its “Study on the application of the Interchange Fee Regulation” giving a glimpse of the potential upcoming developments and the further regulation of card payment interchange fees in the European Union.

The study analyses the effects of the EU Regulation 2015/751 “on interchange fees for card-based payment transactions” (also called Multi-Interchange Fee Regulation or “MIF”). It had been commissioned by the European Commission to satisfy the requirements of evaluating the Regulation as set out in Article 17 MIF and was prepared by Ernst & Young and Copenhagen Economics. The study examines the general developments in the card payment sector after the introduction of MIF in the European Union and focuses on a selection of EU member states (Germany, Denmark, Greece, Italy and Poland) for an in-depth analysis of its effects. While preliminary versions of the study had already been circulating in the past, the final version now offers deeper insights on the effects of MIF and also hints on the potential further developments in this sector.

According to the study, the limitation of the interchange fees (to 0.2 % of the transaction value regarding debit card transactions and 0.3 % of the transaction value regarding credit card transactions respectively) has led to substantial savings both for the consumers using and the businesses accepting the respective card payments in the European Union, with estimates exceeding EUR 2bn annually.

On the other hand, the study notes that the limitation of the interchange fee for credit and debit card transactions has in some countries also led to moderate increases of the scheme fees paid by issuers and acquirers to participate in the payment systems, especially in those countries where MIF led to substantial decreases of the average interchange fees. But apart from that, the study found no clear evidence for any widespread evasive actions to compensate for the decreased revenue from the interchange fees. Both cardholder and banking fees remained relatively stable.

In general, the competition in the market for payment services seems to have increased with new offers for digital payment services challenging the traditional card-based payment services. Still, the sector has seen substantial growth with a 48% increase of the number of points of acceptance for the respective card payments, a 54% increase of the number of card payments and the average transaction value increasing by 25% between 2014 and 2018 in the European Union.

The study also analysed the effects on card payments not subject to MIF, made with so-called commercial cards or cards in three-party schemes, and found no signs for a substantial shift towards the non-regulated payment cards. Indeed, the number of points of acceptance and the number of cards in three-party schemes seems to have decreased since the introduction of MIF.

With the results at hand, the European Commission could be emboldened to demand further decreases of the interchange fees. After all, Article 17 (k) MIF already provides for a further potential fee cap to EUR 0.07 per transaction for high-value transactions. On the other hand, further developments regarding digital payment services could also lead to sufficient competition in this field, effectively making stricter regulations obsolete.

> The full report is accessible here