Business

Consumers to 'benefit' from EU plan to cut card fees

wallet of cards
Image caption Banks say the changes could mean more expensive credit cards

Millions of British consumers could benefit from plans by the European Union to cut transaction fees on debit and credit cards, say UK retailers.

The fees involved are paid by shops and businesses to banks, every time a consumer uses his or her card.

Retailers say customers could ultimately benefit from lower prices in the shops.

But banks argue that consumers will instead end up paying higher charges to use debit and credit cards.

The EU proposals involve a potential cap on what are called "interchange" fees.

They will be considered by the European Commission on 24 July, but could take years to implement.

The cap

Shops and businesses pay different interchange rates to the banks, depending on the size of the retailer, and whether the customer has used a debit card or a credit card.

On average, debit card transactions cost the retailer 9p each, or around 0.2% of the bill.

Credit card transactions typically cost much more, at around 0.9%.

Under the plans to be considered by the EU, debit card interchange fees might be capped at 0.2%, and credit card fees at 0.3%.

In other words, many debit card fees would not be affected by the changes, but charges for credit cards would, on average, be reduced by two-thirds.

In the first instance, these caps would only be applied to cross-border transactions, such as a UK resident making a purchase elsewhere in the EU.

But the caps could later be applied within each of the member states.

'More expensive'

Shops and businesses would be the first to benefit from such changes, as they would have to make much smaller payments to banks when a customer uses a credit card.

They have welcomed the idea.

"It's hugely significant, and massively positive," said Richard Braham, head of payments at the British Retail Consortium (BRC).

Image caption Retailers argue that shoppers would benefit from the changes

"There's definitely more that can be done, on a domestic level, to reduce the exorbitantly high fees," he told the BBC.

The BRC argues that if retailers pay lower fees, they can pass those savings on to customers.

But the banks argue that the present fees accurately reflect the costs of processing the transactions involved.

And they say they stand to lose about £1.2bn worth of revenue from credit card interchange fees every year.

If the plans are approved, they warn that consumers will end up paying more for the cards themselves.

For debit cards, they say consumers might have to pay an extra £11 a year.

Credit cards, they say, could cost an extra £25 a year.

"Ultimately, consumers will end up having to pay more," said Richard Koch, the head of policy at the UK Cards Association.

40% of people with credit cards do not pay any interest charges, so banks say they need to recover their costs somehow.

And they say there is no evidence that fee caps would reduce prices in the shops.

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