Card Fees Rise Despite Interchange Fee Caps

CSMPI’s latest Insight magazine reports on card fee changes in 2021 around the world. It suggests that each tweak in the fees may appear small but, overall, the additional revenue is likely to be over $1.1 billion in the US alone. It argues that national regulatory approaches have interacted with fee increases to make payments acceptance costs more complex than ever.

Merchant Service Charges (MSCs) consists of an interchange fee, a network fee and the acquirer’s margin. Regulators have usually chosen to cap the interchange element of the MSC, which is paid to the card issuing bank. Typically, the interchange fee is the largest of the MSC elements.

Below is a list of debit card charges. The variety illustrates the impact regulations have across markets – making them localised, channel-specific and difficult to reconcile.

Regulation can be a blunt tool. In 2015 the EU introduced its Interchange Fee Regulation. By 2020, however, CMSPI estimated that the average MSC in Europe was two basis points above its pre-IFR level. This appears to have been achieved by increases in three areas.

First, network fees have been increased – CMSPI states they have added €1.46 billion to merchants’ annual costs in Europe.

Second, the interchange cap only applied to consumer card transactions with the European Economic Area, allowing increases on commercial cards.

And third, the acquirer margin has been made so complex that it can be difficult for merchants to separate this from other fees, particularly if they are charged at a bundled rate.

The report tells similar stories for the US, UK and Australia. In the US a ban on network exclusivity or routing did introduce competition in debit processing that has helped lower costs. But overall, fees go up despite the regulations within a relatively short period of time.