The impact of EU price rules: Interchange fee regulation in retail payments

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Willem Pieter de Groen

Debit and credit cards have gradually increased in importance as instruments for retail payments. This has prompted anti-trust authorities at both national and European levels to investigate and limit the interchange fee-based revenue model of four-party schemes. These moves were followed in 2015 by the introduction of the Interchange Fee Regulation (IFR), which introduced price rules to nurture a competitive, innovative and secure payments environment for all stakeholders. The IFR caps the interchange fees on consumer debit and credit cards and prohibits restrictions on co-badging and certain requirements to honour all cards for merchants.

This paper assesses the impact of the IFR. Based on a literature review and data analysis, it concludes that the IFR has led to a drop in interchange fees – in some cases below the maximum defined in the legislation in all EU member states. 

The decrease in the interchange fee is largely reflected in lower charges for merchants, although the reduction is – at least partially – offset by higher scheme fees charged by international four-party card schemes and by higher fees for cardholders.

The policy recommendations aim to increase transparency for a fuller understanding of the functioning of the market and to enhance competitiveness in both the market for card payments and other payment instruments.

Willem Pieter de Groen is Research Fellow and Head of the Financial Markets & Institutions Unit, CEPS