interchange fee caps to change acquiring market

Application to All Payment Cards as of 2018

Interchange caps bring about new competition in the merchant acquiring market as the obligation to use them becomes mandatory for business payments.

Putting a cap on fees that an acquiring bank (a merchant’s bank) pays the issuing bank (a customer’s bank) has put a lot of pressure on acquiring banks. The European Commision had a simple plan that was supposed to enable consumers and merchants to pay less for card transactions. Thus, starting from December 9th, 2015, in all European Union member states the interchange fees were limited to 0.3 % for credit cards and 0.2 % for debit cards.

Interchange caps have been applied to all payments which involve personal payment cards and are handled by an intermediary, such Visa or MasterCard. At first, business payment cards, like those issued by third-party providers like American Express and Diners, have been exempt. But as of 2018, the interchange caps will be applied to all payment cards.

New Opportunities for All Players in the Field

So far, the interchange cap has brought an advantage to large merchants only who have boosted their profitability at the expense of acquiring banks. Medium and small merchants, together with consumers, however, did not experience any benefits because the changes in pricing the acquiring banks implemented in order to protect their revenue.

Additionally, there are still fees for operational and technical services which are unaffected by the cap. This means many merchants are still paying the original amounts, despite the cap having been implemented to ensure that they pay a third of what they used to. 

This creates the opportunity for competitors, such as Samsung Pay and Apple Pay, to gain new merchant customers via lower prices than merchants can expect from their banks. Acquiring banks thus need deliver efficient and convenient solutions and work to maintain a loyal client base.

Good news for acquirers

The merchant acquiring market in Europe is experiencing a continuous transaction growth across member states, which is market trend that works in favor of acquirers when it comes to interchange fee caps.