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Ominous or joyous interchange news, depending on your perspective, just rolled in from Europe. The European Commission, the antitrust authority in European Union nations, on Dec. 8 accepted Visa Europe’s proposal to reduce debit card interchange by up to 60% in nine countries.
The EC’s action, while having no legal application in the U.S., comes as American bankers, merchants, and payment executives anxiously await debit card interchange regulations from the Federal Reserve Board. The Fed is expected to announce rules this month or in January implementing the new Dodd-Frank financial-reform law that calls for regulation of debit interchange and gives merchants more freedom to choose debit networks and route debit transactions over the least-costly rails.
According to a news release from the Brussels-based EC, Visa Europe committed to cutting the maximum weighted average multilateral interchange fee (MIF) to 0.2%, applicable to cross-border debit card transactions and domestic debit transactions in nine countries where Visa Europe directly sets MIFs. “This represents a reduction of about 60% on average for domestic MIFs and 30% for cross-border MIFs,” the EC said.
Visa Europe, an association and licensee of San Francisco-based Visa Inc. owned by 4,000 banks, also committed “to maintain and further develop measures which will increase transparency and competition in the payment cards markets,” the release said. Such measures could include publication of MIFs, unblending of merchant fees, and the possibility of merchants being able to freely choose which Visa products they would accept.
Wednesday’s announced rate reductions largely follow a proposal Visa submitted in April and are binding for four years. A trustee will oversee their implementation. “The agreed commitments on immediate debit interchange fees and methodology are an important step towards the achievement of the Single Euro Payment Area (SEPA),” Visa Europe chief executive Peter Ayliffe said in a statement reported by the Reuters news service.
The countries directly affected are Greece, Hungary, Iceland, Ireland, Italy, Malta, Sweden, Luxembourg, and the Netherlands. (Visa’s cards in Luxembourg and the Netherlands currently are prepaid cards only.) The new rate regime could be extended to other countries should Visa become responsible for setting MIFs elsewhere.
The EC said it would end its Visa debit card investigation that started in April 2009 on the premise that association’s payment practices harmed competition between merchants’ banks, inflated merchants’ costs, and ultimately increased consumer prices. The commission is still investigating issues involving Visa credit and deferred debit cards, according to wire reports. The EC has also challenged MasterCard’s consumer debit card interchange fees. MasterCard has adjusted them in 2009 but is appealing in court.
In a research note issued on Wednesday, investment bank Goldman Sachs & Co. said Visa Europe’s action would not affect Visa Inc.’s revenues. Goldman Sachs, however, said U.S. debit card interchange rates are likely to decline, with the Fed possibly clipping signature-based debit card interchange down to PIN-debit levels. As bank card networks, Visa Inc., Visa Europe, and MasterCard set debit and credit card interchange, but merchant acquirers pay the fees to card issuers. Acquirers pass the expense on to merchants, whose complaints about rising card-acceptance costs have caught the ears of legislators and regulators on both sides of the Atlantic and in Australia in recent years.
