The digital market requires efficient payment infrastructures that require investments and innovation from financial services suppliers.
The European Commission proposal and the European Parliament's position would lead to a disproportionate intervention in the market with inadequate analysis of what the effects of that intervention would be.
This action will likely cause retailers to pass costs on to consumers leading to a loss of revenue for businesses.
A pragmatic approach is needed that benefits all parties to foster and improve the European economy.
All risks associated with credit card payments are taken on by card issuers, not consumers or merchants. For example, in the event the consumer doesn't pay for the transaction, the card issuer absorbs that at no cost to the merchant or consumer. The value of this "payment guarantee" exceeds the cost of interchange fees.
Commercial cards (credit) provide a total net benefit of €9.3bn across the EU-UK and Germany taking c.34% of total net benefits as a result of having the highest usage across the EU.
Assuming the average transaction value stays the same, a reduction in total card volume by 40% will reduce net benefits by €1bn for merchants even with the reduced merchant service charges. This will make it difficult for merchants to justify the cost of accepting commercial cards.
The interchange fee caps could result in a reduction of net benefits by €645mn for issuers, leading to an 81% increase in card fees (€20 per card) and a decrease in small and medium enterprise net benefits by €645mn.
Across the EU, late and unpaid payments cost small and medium enterprises €350bn. In the UK alone, £36.4bn is reportedly owed to small and medium enterprises, with 35% claiming a debt of £20k would be enough to put them out of business.
Larger merchants are able to negotiate to obtain the full cost reduction from interchange fee regulation while small and medium enterprises are not. This puts smaller merchants at a disadvantage.
Interchange fee caps will likely lead to reduced credit availability, causing cardholders who purchase from small or medium merchants to have less credit available to spend.
Possibility of a reduction of credit of €372m for small and medium enterprises and merchants across Europe.
Reduced credit availability also means that the cardholders who purchase from small and medium enterprises will have less credit available to spend.
In Australia, interchange fee caps have been implemented and as a result, consumers now pay 50% more for their cards. Australian small merchants now pay up to ten times more to accept card payments than large merchants. Fees for standard four-party credit cards increased by 22% between 2001 and 2004, while annual fees for rewards cards increased by 47%-77%. As a result, cardholders in Australia are now paying approximately AU$480 million more in additional fees for credit cards each year. Meanwhile, the value of reward points for four-party cards has declined by approximately 23%. The interchange cap has also benefited merchants to the extent of approximately AU$850 million per year but merchants have yet to show evidence these savings have been passed on to the consumers. On average, surcharges on users of four-party cards have exceeded average merchant service charges. In 2002, the Reserve Bank of Australia reduced interchange fees by some 50%, saving retailers AU$850 million a year. Unfortunately, this means consumers are paying some AU$500 million more in additional card use fees to cover the shortfall while the benefits have declined. This has translated into 22% more in annual fees for standard credit cards and 77% more for reward cards. On average, surcharges on users of four-party cards have exceeded average merchant service charges.
In Spain, there has been a 50% increase in annual fees for standard four-party payment cards. that's a total cost to consumers of €2.350 billion over a five-year period. Since the agreement, the standard four-party payment cards operations average dropped from €52.1 in 2005 to €44.3 in 2010, while the ATM operations average rose from €91.2 to €117.2. A 2005 reduction in interchange of almost 60% resulted in a 50% increase in card fees. Spanish merchants have received a MSC reduction of €2.749 billion from interchange capping during this five-year period, and there is no evidence that even a fraction of this cost saving has been passed on to consumers via reduced prices or through an improvement of the services provided.
In the United States, legislation in 2010 implemented a reduction in interchange fees of nearly 50%, saving retailers an estimated $8 billion a year, yet consumers found that they were paying more for the same products while paying higher charges for traditional banking services and enjoying reduced rewards.
There's an even bigger risk of harm to consumers in the UK if interchange limits are adopted because the UK comprises around 30% of card payments in the EU. They are the largest user of credit cards (about 70% of credit card usage in the EU). The UK is the largest e-commerce market and one of the strongest innovation economies. There are 150+ million cards in the UK (90+ million debit cards with £340bn spend; 60+ million credit cards with £110bn spend) 45.7 million debit card holders, which equals 90% of the adult population. There are 30.9 million credit and charge card holders, which equals 62% of the adult population. All of these cardholders will be forced to pay more (at least £17 per annum for just a standard credit card; more for rewards cards
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