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Home |About Us | Blog | Scheme Fees: Are Their Days Numbered? by Fran Warburton, Reporter, PaymentsCompliance

Designed to cut card acceptance costs for merchants and, in turn, drive down retail prices for consumers, the Interchange Fee Regulation (IFR) had wholesome hopes of delivering a cheaper and fairer European payment system.

But since its introduction in 2015, the regulation has continued to cause animated debate between the different parties affected, splitting opinion among merchants, acquirers, issuers, card scheme operators and consumer organisations as to whether the rules have proved fit for purpose.

A review by the European Commission into the effectiveness of the IFR, initially supposed to be completed by June 2019, was expected to go some way to answering that question.

However, the commission has already requested an extension, and although not publicly announced, the European Council and Parliament have given the green light to push the deadline back to the following year.

It appears that the delay was in part caused by complications in the tender process, after the contract price failed to excite potential bidders given the ambitious scope of the research task.

The review will eventually analyse whether the 0.2 percent and 0.3 percent caps on debit and credit card interchange fees have delivered the overarching goal of making card payments cheaper.

Many merchants have argued that the reductions on interchange have been offset by significant hikes to scheme fees, meaning they have seen little or no benefit.

Although directly paid by the acquirer, a proportion of the levy is generally passed down to retailers as part of the wider merchant service charge, which also contains the interchange fee and a profit slice for the acquirer.

Those fees cover a sea of charges, ranging from authorisation to branding and compliance, but are not publicly disclosed and are currently unregulated. The schemes respond that the fee is necessary to deliver a secure, global network.

With the review in sight, retailers are going in all guns blazing to bring scheme fees under the IFR’s scope.

However, PaymentsCompliance understands that the European Commission is currently reluctant to intervene on scheme fees, not least because further price controls would likely prove a tough sell to the European Council and Parliament.

And as there hasn't been the same history of antitrust case law as there was for interchange fees, that could weaken the legal grounds for action.

There are whispers that the EU lawmakers are more open to tweaking the debit card interchange fee cap for high-value transactions. The regulation suggests that the cap could be adjusted to 0.2 percent of the transaction value or €0.07 - whichever is lower.

In effect, that would mean the interchange fee for any transaction of €35 or more would be just 7 cents.

While the review’s core analysis will focus on interchange fees, scheme fees and merchant service charges, changes to scheme business rules and processing frameworks will also come under the magnifying glass.

The European Comission will assess the level of competition between card schemes and issuers in the post-IFR market, along with the exemptions for commercial cards and the impact of surcharging restrictions.

Some have questioned the relevance of the interchange model given the shift towards instant credit transfers, propelled by the revised Payment Services Directive (PSD2) — an alternative payment method that is expected to present tough competition to traditional card schemes.

Either way, EU lawmakers are braced for intense lobbying efforts from all corners of the payment card network.

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