Over the last 20 years, the European Commission and national competition authorities have conducted a number of antitrust proceedings addressing anti-competitive practices in the card payment market. One of the key practices hindering the achievement of an integrated market is the widespread use of Multilateral Interchange Fees (MIFs), hitherto unregulated in the EU. Interchange fees paid by acquiring payment service providers form part of the fees they charge to merchants which merchants in turn pass on to consumers. Furthermore, a wide variety of interchange fees applied within national and international payment card schemes, has given rise to market fragmentation, preventing retailers and consumers from enjoying the benefits of an internal market for goods and services.
Originally proposed in July 2013, the Interchange Fees Regulation (IFR) was published in the Official Journal of the European Union on 19 May 2015. The main aim of the Regulation is to cap interchange fees, which are set centrally by the card scheme and which merchants have limited negotiating power over. As well as capping interchange fees (0.2% for debit card transactions and 0.3% for credit card transactions across the EU) the IFR also aims to improve transparency and competition in the card market by removing barriers to entry.
The Regulation should be read alongside, and interpreted with, the second Payment Services Directive (PSD2) which applies from 18 January 2018.
As a Regulation, the IFR is directly applicable however it provides for national discretions in 3 areas, Member States may;
-lower interchange fee caps for domestic credit card transactions;
-lower caps on interchange fees for domestic debit card transactions; and
-exempt three-party card systems that use issuers and/or acquirers from caps to interchange fees for a period of up to 3 years, provided that the scheme’s market share remains below 3% in that Member State.
Provisions within the IFR will take effect on different dates:
-The interchange fee caps came into effect on 9 December 2015,
-the majority of provisions relating to business rules came into effect on 9 June 2016,
-Member States may also allow PSPs to apply a weighted average interchange fee of no more than the equivalent of 0.2% of the annual average transaction value of all domestic debit card transactions within each payment card scheme until 9 December 2020.
The European Banking Authority (EBA) submitted draft RTS to the Commission on 26 July 2016. During the preparatory process of the draft RTS, the Commission expressed a number of concerns relating to the Consultation Paper and the draft RTS in its Communication of 5 January 2017. The EBA issued an Opinion to the Commission in February 2017, expressing dissent over some of the proposed amendments to its final draft RTS on the separation of payment card schemes and processing entities under the IFR. The EBA clarified that there is no clear requirement for a legal and structural separation between card schemes and processing entities.