On December 9, the regulation for new interchange fee caps by the European Commission took effect, as a move to let businesses save on credit and debit card transaction fees. The regulation states that interchange fee for credit card transactions within EU will now have a cap of 0.3%, while debit cards will now have a 0.2% cap.
According to the British Retail Consortium, the cap adjustments will allow businesses to save up to £480 million a year. The interchange fees for card-based payment transactions will limit charges placed by card companies on retailers using electronic payment systems, which will result to more affordable retail prices and promotion for consumers to pay using their cards.
EU interchange fee cuts may also slash Mastercard and Visa reward programs
Yet Nick Frankcom, a financials expert of uSwitch, is wary of the potential methods card companies may do to recoup their lost revenues. An effect that Frankcom stated is that card companies may compensate their losses from the cap, by reducing benefits from rewards schemes and cashback programs. The said effect may lead to dejected consumers, especially for those who rely on the schemes for the additional spending and incentives.
Card companies recouping their losses because of cap adjustments has been documented before. A particular scenario happened in the US last 2010, with the Durbin Amendment regulated to also cap interchange fees. With a then projected $14 billion loss on revenue from the cap, card companies recouped their losses through increased fees on current accounts, and implementation of cuts on rewards programs. Instead of an increase in debit card usage, the changes done by the card companies resulted to merchants losing more than $7 billion of profit annually.
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