Interchange fees are transaction fees that an acquirer must pay whenever a customer uses a credit or debit card to make a purchase from a merchant; those fees are typically passed on by the acquirer to the merchant. These interchange fees are credited to the card-issuer (for example a bank) to cover handling costs, fraud, bad debt costs and the risks involved in approving the payment.
European Union (EU) legislation that took effect as from 2015 (the EU Interchange Fee Regulation or IFR) brought major changes to the way card schemes operate, most notably by introducing a cap on certain interchange fees applicable to payment cards. The IFR currently limits interchange fees to 0.2% of the value of a transaction for consumer debit (including consumer prepaid) cards and 0.3% for consumer credit cards. However those caps apply only to transactions where the issuer and the acquirer (and possibly the merchant?) are located within the EU.
Transactions involving, for example, a non-EU issuer and an EU acquirer are not subject to the IFR. However Mastercard and Visa, in 2019, have both given competition law commitments to the European Commission in relation to those so- called inbound inter-regional transactions. For card-present transactions, the levels are the same as under the IFR, while for card-not-present transactions they are higher: 1.15% for consumer debit (including prepaid) and 1.50% for consumer credit.
With Brexit now in full effect, transactions involving a UK card used at an EU merchant fall outside the scope of the IFR. While today Mastercard and Visa continue to apply the IFR levels on a voluntary basis, Mastercard has recently announced that, effective 15 October 2021, it would stop doing so – and instead will apply the commitments that it has agreed with the European Commission. This means that when a UK customer will buy online from an EU merchant, the EU acquirer, and ultimately the EU merchant, will be charged 1.15% for consumer debit (and prepaid) cards and 1.50% for consumer credit cards, a five fold increase in costs for EU merchants (to the benefit of UK issuers).
Both EU and UK Consumers could be impacted by this interchange fee increase if it was passed on by EU merchants in their retail prices.
But UK customers could also be directly impacted if EU merchants decided to apply a so-called surcharge on those transactions. Under the second EU payment services directive (PSD2), merchants are in principle allowed to surcharge inbound interregional transactions since they are not subject to the IFR caps. However PSD2 allows EU Member States to prohibit or limit the possibility for merchants to surcharge – and according to information published by the European Commission , 19 countries have exercised this possibility to limit or prohibit surcharging. Visa have not commented as yet, but significantly have not ruled out any changes to fees.
How can APEXX support affected merchants?
APEXX Surcharge Inspector – a real time predictive Interchange and scheme fee calculation engine to facilitate Corporate card and non-regulated card surcharging. The APEXX Surcharge Inspector is the first tool of its kind. It allows merchants to inspect every processed transaction for applicable surcharge on an individual basis and to charge the maximum applicable amount in real time. This tool puts an end to merchants losing out on surchargeable opportunities on corporate and non-EU cards, which can amount to many thousands per year, without running the risk of falling foul of the EU regulations.
Facts about Surcharging in EU
It is permissible to apply surcharges to corporate and non-EEA cards whereas local law allows it. Surcharging is limited or prohibited in: AT, BE, BG, CY, DK, EL, ES, HR, HU, IT, LT, LU, LV, MT, PT, RO, SE, SK, UK.
An increasing amount of merchants with a high corporate card mix are already surcharging these card types. The APEXX Surcharge Inspector allows merchants to dynamically charge up to the maximum permissible amount in real-time, ensuring that all of the possible surchargeable cost is recouped on every transaction.
AIRE - APEXX Intelligent Routing Engine
APEXX can help merchants route transactions with a number of benefits; Merchants who have both an EU and a UK entity can route the cards to their respective domestic market using APEXX’s intelligent routing engine called AIRE. This means a UK consumer buying from a German webshop with his UK issued card can be routed to the merchant’s UK merchant account to avoid the higher interchange fees. As well as routing transactions to optimise interchange fee costs, the merchant will also potentially benefit from a higher conversion rate as local banks tend to honour domestic payment transactions more than international ones.