The EU has approved Mastercard and Visa’s proposed fee cuts (V, MA)

This is an excerpt from a story delivered exclusively to Business Insider Intelligence Payments Briefing subscribers.
To receive the full story plus other insights each morning, click here.

The European Union (EU) accepted Visa and Mastercard’s proposed fee cuts on payments made on non-EU cards, settling a longstanding dispute between the European authorities and major card network, according to Bloomberg.

Flickr / roujo

Here’s what it means: The issuers’ fee reductions mark the end to a more than decade-old antitrust investigation.

Mastercard and Visa initially submitted the fee cuts in December 2018 to help resolve antitrust investigations by the EU and the European Commission (EC).The EU and EC argued that swipe fees resulted in inflated prices for customers. Visa and Mastercard proposed to cut their fees made on non-EU credit and debit cards by at least 40%.
The reduced fees are applicable to both online and in-store transactions. Fees will be cut down to 0.2% for debit card transactions and 0.3% for credit card transactions, while online transactions will be cut to 1.15% for debit cards and 1.5% for credit cards. A Visa spokesperson previously noted that online transactions often come with higher fees because they’re riskier.
The fee cuts must be introduced within six months and will be in effect for 5.5 years. Fines will apply for networks that violate the policy, and Mastercard said it will cut its fees on October 19.

The bigger picture: Interchange fees have been the cause of controversy globally — and Europe’s ruling could set the precedent for how other regions deal with the fees.

Visa, Mastercard, and other major issuers have run into disputes regarding interchange fees in the US and Canada. Last year, Visa and Mastercard, as well as major issuing banks like Bank of America, Citi, and JPMorgan Chase, agreed to a $6.5 billion settlement for an antitrust lawsuit initially filed against them in 2005 by merchants regarding the interchange fees they charged, marking the largest antitrust lawsuit in history. And Canada’s finance minister announced agreements with Visa, Mastercard, and American Express that will lower interchange and other card acceptance fees to cut merchant costs associated with card acceptance. These are just a few of many examples of the ongoing battle over interchange that’s been a pain point for retailers worldwide.
These changes could impact US consumers when traveling overseas. Although these changes could prevent merchants from passing the fees along to customers in the form of higher prices, card issuers might offer less compelling travel rewards. And having to charge lower fees might cause issuers to stop offering low or no foreign transaction fees on travel cards.
Card networks might need to find other ways to generate revenue, particularly as demand for card acceptance increases. The European Commission’s ruling might dictate how these networks will generate revenue going forward, potentially making it necessary for card networks to evaluate their fee structures. And in Europe, which has some cash-heavy countries like Germany that are pivoting toward increased card usage, and others like Sweden, where cash is virtually nonexistent, merchants will want to accept cards to accommodate those payment preferences. These fee cuts could make it more affordable for merchants to accept cards, which could result in an uptick in usage.

Interested in getting the full story? Here are two ways to get access:

1. Sign up for the Payments Briefing to get it delivered to your inbox 6x a week. >> Get Started

2. Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to the Payments Briefing, plus more than 250 other expertly researched reports. As an added bonus, you’ll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> Learn More Now

Source: Business Insider – feedback@businessinsider.com (Rachel Green)