Summary: Interchange rates in the EU

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In the financial services sector, interchange fees are interlinked with all credit/debit cards and subsequent transactions. But what is the interchange really, and how does its use in card payments affect business?

Due to their business model, Visa, MasterCard, and all other major credit card issuers have an interchange fee associated with their cards. The interchange is implemented when a purchase takes places at a merchant location, and the payment is transferred from the customer’s bank to the bank of the merchant. The customer’s bank takes the fee off the amount transferred to the merchant bank in order to cover their card-related operating costs.

mastercardIn the last few months, MasterCard has been in the headlines for its European interchange fees. Their fee structure separates transactions within a European country (domestic) and cross-border transactions in the European Economic Area (EEA), which were adopted by the company in 2014 for both MasterCard credit cards and Maestro debit cards. Following investigations by the EU Commission, the company has run into antitrust issues based on this fee model.

The EU Commission has been fighting MasterCard over its Euopean interchange fees for years. In April 2015, the Commission placed a cap on all credit card (0.3%) and debit card transactions (0.2%) in Europe. According to the Commission, the reasoning for the fee cap lies in the high rates charged to merchants and consumers as well as their negative effect on competition in the payment service provider industry.

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