Background. The European Commission (EC) has decided to regulate the interchange fee in Europe and to set other regulations applied to card-based, internet or mobile payments. Another proposal in the debate process was setting caps not only on consumer cards, i.e. cards owned by individuals, but also on commercial cards owned by legal entities. Inclusion and regulation of these cards is not planned by EC but is suggested by politicians and representatives from individual countries.
What is interchange fee? Interchange fee (hereinafter referred to as IF) occurs during a transaction when payment operations are made between the merchant’s bank and the consumer’s bank, for the goods and services purchased by the consumer for which the consumer pays using a card issued by the consumer’s bank. In simple terms, thanks to the interchange fee, the consumer is able to pay the merchant even when the two of them use the services of different banks.
EC position. According to EC, the current IF’s are too high, differ from state to state, and are not transparent. It is argued that this hampers development of a single European market, which makes this fee (IF) a major barrier to the growth of e-commerce, emergence of new and innovative electronic payment methods, and the creation of a single market. According to EC, the unification of IF rates across the EU could foster competition, innovation and growth of e-commerce.
LFMI position on interchange fee regulation. Although the goal of EC to create a single European market is good, the measures proposed by EC are not suitable for achieving it. On the contrary, the measures proposed by EC would be harmful. The regulations would have the greatest negative effect on consumers, who are likely to incur relatively higher card handling fees, and to lose part of discounts or incentives.
LFMI position on expanding interchange fee regulation to commercial cards. IF regulation for commercial cards is not sufficiently justified. Commercial cards are intended for settlements not between a consumer and a business entity (the business to consumer segment), but rather between different business entities (the business to business segment). Therefore market intervention cannot be based on consumer protection arguments.
Secondly, the proposal pays no regard to the differences between private and commercial payment cards. If consumer cards are more a substitute for money, commercial cards are used instead of invoices, checks and money orders. If we look at the differences between these two products, it is obvious that the performed impact assessment of IF regulation for private payment cards cannot be used to justify interchange fee regulation for commercial cards.
The debate on expanding the object of IF regulation only illustrates part of the problems and potential unforeseen negative effects caused by market intervention, which have been pointed out for a number of times by academics and researchers not favouring interchange fee regulation. Once regulation of one market segment is started, initiatives to regulate other segments often occur, forgetting the reasons behind starting the regulation in the first place. According to LFMI, the proposal to regulate IF for commercial cards is unnecessary and, at least for the time being, has not been proven as reasonable.