Out-Law News 3 min. read

Card payments scheme could face tighter controls


Charges that banks and other payment service providers (PSPs) levy for processing credit and debit card payments could be more strictly regulated under plans unveiled by the European Commission.

The Commission has launched a consultation seeking views on how to better "integrate" the EU market for card, internet and mobile payments and is considering whether or not differences in fees between EU countries are justified or not.

Multilateral inter-change fees (MIFs), as they are known, are generally applied to credit card payments. Whilst banks charge retailers a merchant service charge to collect card payments, those banks themselves are generally liable to pay MIFs to other banks that are issuing the payment on behalf of consumers. The acquiring bank usually recoups the cost of paying MIFs through the merchant service charge it levies on retailers.

MIFs have provoked controversy and led some competition authorities across the EU to examine whether major credit card companies, including Visa and MasterCard, had breached competition rules. In the UK the Office of Fair Trading (OFT) has previously investigated the way both companies agreed the level of MIFs with banks.

"The existence of a wide variety of different (levels of) fees and the different timelines and scope of legal proceedings under way or completed at national and European level could lead to distortions in the Single Market," the Commission's consultation paper (25-page / 134KB PDF) said. "This could exacerbate market fragmentation, and means that retailers can not yet enjoy the benefits of a Single Market in payment cards."

The Commission has asked respondents to its consultation for their views on how difficulties with the MIFs scheme can be resolved. It has asked for views on whether a barrier to better integration of payments systems is borne from the fact that different levels of MIFs are applied in different EU countries "under the same card scheme".

The Commission also said that there is "a lack of transparency" about MIFs and asks respondents to detail whether the level of fees should have to be disclosed. The Commission has also asked whether MIFs should be lowered, citing high MIFs as a barrier to market entry, including in the electronic and mobile payments markets.

The Commission said that MIFs affect the EU's e-commerce market due to the fact consumers often use credit or debit cards to pay for goods and services over the internet or via their mobile phone.

The "legal clarity on interchange fees" may be altered through changes to EU legislation as the Commission has asked respondents whether this needs to improve and "through which instrument" it could be achieved.

The Commission is also consulting on potential changes to other aspects of the card payments system. The Commission wants to ensure there is more transparency about card payment charges. Retailers may be forced to tell consumers about any charges they are being asked to pay for using cards. Retailers may also be forced to reveal the details of how much they pay banks through their merchant service charge as well as the MIFs arrangements that may apply to payments, according to the questions asked in the Commission's consultation.

A further "harmonisation" of rules around surcharges levied on payment methods is also under consideration.

"Surcharging should not be used as an additional revenue source by merchants but should be limited to the real cost of using a payment instrument," the Commission said.

The Commission is also urging work to continue on achieving uniform "technical standards" on the way payment systems operate. Standards are agreed technical specifications to ensure that a single technology is used across an industry, often with the goal of achieving interoperability of products regardless of the manufacturer.

"European payment users (companies, consumers, merchants) will fully benefit from competition, freedom of choice and more efficient payment operations if cross-border interoperability is achieved.

This applies to all electronic payments and involves multiple factors in the payment process, depending on the payment method. However, standardisation of the various components (e.g. protocols, interfaces, applications, services) needs to be carried out thoroughly in order to minimise the risk of foreclosure of potential competitors or innovation," the Commission said.

The Commission has also urged banks, mobile network operators, manufacturers and technology developers to work more closely together to better develop an interoperable system for obtaining mobile payments. These organisations should also consider working with public transport and health bodies, amongst others, to help develop standards in the use of the technology for specific payment systems, such as paying for transport tickets or health insurance using m-payments.

"A secure and transparent integrated payments environment throughout the EU could create more efficient, modern and safer means of payments – for the benefits of consumers, merchants and payment providers," the Commission said in a statement. "The Commission seeks the views of stakeholders as to which obstacles hinder further market integration and how these could be resolved".

Responses to the Commission's consultation must be submitted by 11 April.

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