India Markets open in 7 hrs 31 mins

Your Europe holidays budget to get cheaper: A huge cut in credit, debit card transaction fee in EU countries in the offing

Sunil Dhawan
Interchange Fee Regulation, Visa , Mastercard , inter-regional interchange fees, Indian tourist, EU countries, Credit card, debit card

Visiting countries in the European Union may become less costly soon. Indian tourists visiting any of the 28 member nations of the EU may end up saving a huge amount if the deal between the European Commission and the payment networks such as Mastercard and Visa goes through.

Both Visa and Mastercard have offered to cut their inter-regional interchange fees (IRIF) on card transactions made in European Economic Area (EEA) locations by using a card not issued by EU banks.

Simply put, any tourist including Indian tourist will have to shell out less when using debit, cards ( issued in India) in the EU countries.

Going forward, from the current level of inter-regional interchange fees for Card Present Transactions on Debit and Credit cards and also on Card Not Present Transactions (online) on Debit and Credit cards, the cost is going to fall by nearly 40 per cent of what it was earlier.

IRIF is applied to payments made in the European Economic Area (EEA) within EU countries, using debit and credit cards issued outside the EEA. For example, when an Indian tourist uses a Mastercard or Visa card to pay a restaurant bill in Belgium, it will be less costly than before.

Currently, when a tourist uses a debit or credit card in a shop or online, the bank of the retailer (the ‘acquiring bank’) pays a fee called ‘interchange fee’ (‘IF’) to the cardholder’s bank (the ‘issuing bank’). The acquiring bank passes this fee on to the retailer who includes it, like any other cost, in the final prices to all consumers, even to those who do not use cards.

This makes the EU commerce anti-competitively offer higher prices for consumer goods and services by European retailers accepting payments from cards issued outside the EEA.

To address the Commission’s competition concerns, Mastercard and Visa have, each separately, decided to offer the following commitments that would reduce the IRIF by at least 40%:

The commitments would apply for a period of five years and six months and if there is any breach, then there can be a fine of up to 10 per cent of the company’s worldwide turnover.

In April 2015, the EU’s Council of Ministers and the European Parliament adopted the Interchange Fee Regulation, which from December 2015 capped interchange fees for cards issued and used in Europe (maximum of 0.2% for debit cards and 0.3% for credit cards).

The Interchange Fee Regulation established a level playing field for the card payments in the intra-EEA transactions. However, the caps of the Regulation do not apply to inter-regional transactions, as the Regulation does not apply to cards issued outside the EEA.

But, once the new rules are in place, even inter-regional transactions will be at par with intra-regional ones and will end up saving a few extra dollars or euros for the Indian tourists.