On July 24th, the European Commission proposed to cap interchange fees charged by banks to merchants at 0.2% for debit cards and 0.3% for credit cards based on the value of the transaction. For a $100 (about €75.26) transaction, the fee would be capped at 20¢, very close to the cap that the U.S. Federal Reserve has set on debit transactions under the Durbin Amendment to the Dodd-Frank Act. Companies trying to gain traction in mobile payments both here and abroad may find it ironic that just when a new platform is emerging that could challenge the big card brands and big banks, government intervention may substantially reduce what could have been a major economic driver toward both platform development and merchant acceptance of mobile payments. The EU estimates that the caps would save retailers €6 billion ($7.93 billion) and that all of the savings would eventually be passed on to consumers. But if the reduced prices for use of “plastic” retard the expansion of new and potentially more efficient technology for processing payments by a few years, the reforms might actually cost retailers and consumers in the long run.
LNGS contact: Brooks Harlow (firstname.lastname@example.org)