PSI-Pay: Card transaction fee cap will only end up costing consumers more

If it isn't broke, don't fix it

Plans by the EU to introduce a cap on credit and debit card fees will only end up costing consumers more as issuers will seek to make up for lost revenue from elsewhere, says Phil Davies managing director of PSI-Pay.

The European Commission is preparing to put a 0.2% cap on all credit and debit card transaction processing fees. The EC estimates that a cap will slash total debit card fees across the EU from around EUR4.8bn to EUR2.5bn, and credit card fees from EUR5.7bn to EUR3.5bn.  

Davies states that while this is intended to help consumers, it will in fact do the opposite through increased fees, charges and shop prices. 

“The proposal by the EU to introduce a cap on credit and debit card fees is a contentious issue and one that has sparked a lot of debate. The theory behind it is it will benefit consumers by bringing down the amount retailers have to pay to accept card payments, with the knock on effect of shops dropping their prices, however, we do not see this happening.”   

Davies continued: “Merchant and interchange fees are largely misunderstood and the decision to regulate them could have major implications. If you look at the example of Australia where a similar proposal was carried out, it was initially hoped that by accepting a reduction in card payments, these savings would be passed on to the customer – this did not happen and in fact, the loss of revenue caused card issuers to hike up direct costs to cardholders.  

“We expect a move like this will see card issuers losing out on a revenue stream, which currently helps to reduce costs to consumers, and therefore looking at ways in which this can be recouped. The likely result will be increased cardholder fees, interest rate hikes and, possibly, card issuers putting greater restrictions in place as to whom they lend to.” 

Davies concluded: “The impact of such a move is likely have a significant knock on effect. In order to compensate for loss of cash, card issuers will look to other areas where reductions can be made. This could be a reluctance to invest in technology or improved security measures. Plus lack of available cash might mean lack of lending with banks more hesitant and reluctant to part with their money.  

“Ultimately, it’s a case of if it isn’t broke don’t fix it. The EU should look at the examples of Australia – it hasn’t proven successful in other countries and will only result in more financial uncertainty.” 

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