Multilateral Interchange Fee Caps will have a Mixed Effect in Europe


Earlier this year, the European Parliament voted to regulate credit and debit card interchange fees, lowering the cap to 0.3% and 0.2% respectively. Coming into effect in January 2015, the multilateral interchange fee (MIF) regulation is designed to enforce a fair price among all products and providers in order to encourage new market-entrants and increase competition within the Single Euro Payments Area (SEPA).

MIFs are the fees paid by merchants to payment card providers in exchange for the ability to accept credit and debit card payments both online (card-not-present or CNP transactions) and at the point-of-sale (POS). There has been some resistance to the regulation, particularly from card providers who collect the profits from MIFs, but also from merchants and SEPA-opponents in specific parts of Europe which could potentially see negative effects as a result of the regulations.


 The Single Euro Payments Area is a payment integration initiative coordinated by the European Payment Council in order to introduce a single, harmonised payment format for all transactions in the euro currency. The initiative was designed to integrate the separate national European markets into a single domestic market.

Following in SEPA’s footsteps, the new MIF regulation eliminates the difference between cross-border and national card payments, treating all European card payments equally. While our previous article about SEPA mostly focused on the benefits of that initiative, now that the deadline has passed there is going to be a long period of growing pains while the formerly fragmented European markets merge their payment systems.

Added to these growing pains are further initiatives spearheaded by the European Commission, including the interchange fee cap. This and other initiatives are designed to be beneficial to the European payments landscape overall, but because they apply without prejudice to all eurozone countries, some countries will initially benefit more than others due to existing payment habits, technological infrastructure and economic realities.

UntitledFor example, in the UK the introduction of additional layers of security to card-not-present (CNP) transactions such as Visa 3D Secure and MasterCard SecureCode has had a positive impact on conversion rates. Despite the additional step in the purchase process, customers in the UK are more likely to make a purchase if they have the additional assurance of security. Meanwhile in Germany, the very same technologies have had a significant negative effect on conversion rates.

These extra layers of security are being enforced by the MIF regulation and will therefore now be required by all payment card-accepting merchants. Because of this, merchants who do not already offer the required extra layer of security, particularly those in markets where these technologies have had a negative effect on conversion rates, will initially be at a disadvantage once the regulation comes into force.

However, in the long-term, the regulation will force merchants to increase their level of security and ultimately allow them to profit from the lower interchange fees, which are likely to be shared with consumers in the form of lower prices.

In addition, the mixed effects that the regulation will have in different regions of Europe only applies to card-not-present transactions, while the effects on point-of-sale transactions will almost universally benefit merchants within the eurozone. This is because POS transactions in Europe are already compliant with the security requirements enforced by the new regulation and there is no additional investment necessary on the merchant’s side.

The Benefits

For consumers:

  • Secure and low-cost electronic payments widely available across the eurozone.
  • Wider acceptance of payments cards as more small merchants can afford the fees.
  • No hidden or unexpected fees from card providers.

For merchants:

  • The ability to accept payment cards at fair prices.
  • Cost savings which can be used to improve services and be passed on to customers.
  • Eurozone-wide products and services at a standardised cost.

For payment providers:

  • New market entrants and increased adoption of payment card services will grow total transaction numbers.
  • Increased e-commerce traffic mean increased opportunities for market additional services.
  • New and innovative payment products and technologies will be developed.

Proponents of the MIF regulation view it as a necessary component in establishing a true single euro payments area and in preparing the European payments industry for an increasingly digital marketplace. The European Commission has concluded that current interchange fee levels are anti-competitive, in that they discourage new market entrants and cost businesses an average of 9 billion euro per year. Much of those costs are then passed on to the consumer in the form of higher prices.

In regards to that, lower MIFs are expected to promote innovations, improve customer service and ensure flexibility. The costs savings to merchants are expected to increase competition and result in lower prices for their customers. The negative side-effects involved in establishing SEPA and its associated regulations, while not insignificant, are merely growing pains in the process of building a strong, modern European economy.


E-Commerce Growth Report 2014

Here at DalPay our corporate philosophy is ‘Get it right the first time, one customer at a time.’ Our job is to know the payments landscape like the back of our hands –that’s the only way we can truly provide the kind of value our clients deserve. That’s why, year after year, we go to great lengths to understand the state of the industry, how it got to where it is today, and how it’s likely to evolve from here. And then we ask ourselves ‘What does that mean for us and our customers, and how can we adapt our technologies and services to anticipate the needs of our current and future customers?’

By the beginning of 2014, total global e-commerce sales had reached a value of 1.5 trillion USD, an increase of 50% since 2012, and is predicted to reach 2 trillion USD in 2015. While non-cash payment volumes have been growing fairly steadily for over a decade, the causes of that growth in 2014 reveal some interesting changes in the market.

Number of Global E-Commerce TransactionsFor years, the nature of e-commerce (including mobile- or m-commerce and other non-cash payment technologies), has been in flux. Market disruptors such as the unprecedented growth in developing markets, the rise of m-commerce, and the proliferation of “hidden” payments have defied expectations, while certain predictions such as the adoption of near-field communication (NFC) payments have failed to materialise.

Now industry trends are beginning to show signs of settling into a new paradigm: mobile transaction volumes grew more in the last year than ever before; the infrastructure is now in place for widespread connectivity in emerging markets; highly competitive alternative payments are catering to regional needs; and key regulatory and industry initiatives(KRIIs) have been shown to increase the efficiency and inter-compatibility of financial bodies.

Non-Cash Transaction Volume GrowthLet’s take a closer look at some of the primary growth factors:

1. Economy recovery in established markets

Particularly in the US and the UK, where the industry value grew by 5% and 6.2% respectively in 2013, the growth over the last year has been primarily driven by the continuing economic recovery and by a public that is less wary about online shopping and eager to take advantage of new payment technologies.

2. The development of new and increasingly sophisticated payment alternatives

Cloud-based Software-as-a-Service (SaaS) technologies have reached a level of maturity that is allowing the financial industry to automate many complicated tasks, such as processing credit cards, maintaining digital wallets, coordinating shipping and calculating taxes. As new technologies and real-time payment infrastructures proliferate, the availability of alternative domestic and cross-border payment methods stimulates growth in non-cash payments.

3. The rise of m-commerce

In both established and emerging markets, growth is driven by the proliferation of innovative and competitive payment technologies, particularly those contributing to the rise of m-commerce. Coinciding with the widespread penetration of smartphones and tablets, m-commerce has reached a tipping point. The distinction between e- and m-commerce is vanishing as the same technologies are adapted for use across all platforms. Industry stakeholders, both traditional and alternative, have clued in to this new paradigm and are rapidly adapting their own technologies to suit these channels.

4. The explosive growth rate in emerging markets

The growth rate in emerging markets is significantly higher that of established markets, 20.2% compared to 5.6% respectively. This is thanks primarily to coordinated government initiatives to develop and upgrade the infrastructure necessary to allow non-cash payments to proliferate. Many developing countries have a relatively young population who for the first time have widespread, affordable access to the internet via laptops and smartphones. Due to the availability of mature cross-border payment platforms such as DalPay, these people are now able to participate freely in international e-commerce.

5. The implementation of SEPA

And finally, the Single Euro Payment Area is now in effect and is likely to set an example for many other parts of the world. As of August 1st, 2014, SEPA payments have replaced all national payments in the Eurozone, putting an end to the fragmentation of financial systems based on geopolitical boundaries. Every country in the Eurozone now uses the exact same payment systems and technologies, eliminating the barriers to making cross-border payments such as conflicting regulatory requirements.

A Bright Future

What’s particularly remarkable about the state of e-commerce, m-commerce and the rest of the non-cash payments industry in 2014 is that, perhaps for the first time, everything is going according to plan and everyone is working toward the same goals.

We’re now starting to see an answer to the question of how the payments landscape of the future is going to look – m-commerce is here to stay, and developing nations are not being left behind by the rapid technological growth in the developed world (in fact, they’re catching up!) The growth rates in emerging markets (20.2%) and m-payments (60.8%) signify that the e-commerce industry has reached the next tier of technological maturity. The technologies and infrastructure to allow these two areas to mature are now in place and available.

Going forward, there is still a lot of room for growth in cross-border payments, where there are many opportunities for businesses to leverage new technologies and tailor their offerings to specific regional and inter-regional needs. Visit the DalPay blog regularly for detailed articles about selling across borders, country-specific e-commerce reports, facts and figures about new technologies within the industry, and advice about how to get the most out of selling online.