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Do new rules mean paying more for debit and credit cards?

Banking and credit fees could go up in the wake of new regulations for card transactions

Pile of credit cards

The European Commission has proposed to cap the “interchange fees” that card providers can levy on retail transactions, at 0.2% for debit cards and 0.3% for credit cards.

Currently interchange fees in the UK can be as high 2.5% and are paid by the retailer. For example, on a transaction of £100 the retailer could receive £97.50, with the card provider taking £2.50. The British Retail Consortium estimates these fees costs UK businesses £1 billion a year.

A cap on the fee that card providers charge retailers has caused concerns that transaction costs could be passed onto consumers in the future.

The caps have yet to be introduced, but were voted in by the European Parliament. The proposal is currently sitting with the EU Council before being implemented across the common market.

Who pays the bill?

Retailers are claiming the interchange fee caps as a victory and they will pass their savings onto customers. However, banks and card service providers are worried about their revenues, as they can no longer charge retailers to cover the costs of card transactions.

They believe that the consumer will lose, as service costs will now have to be passed onto their cardholders and we will see no reduction in the cost of shopping baskets. As put by a spokesman for the British Bankers Association ‘inevitably somebody has to pay for increases in costs caused by regulation and that can mean consumers.’

Will retail prices stay the same but your card fees go up?

Spain and Australia have had fee caps for some time. Whilst there has been no fall in retail prices according to a report from European Economics for Mastercard, cardholders in these countries still enjoy fee free credit and debit cards.

Despite this, the report estimates that in the UK “…the average debit card fees would increase by between £0.24 and £12.58, while average credit card fees would increase by between £12.24 and £16.81.”

However, according to David Mann, Head of Money at uSwitch, this is unlikely: “These changes will not have any substantive effect on the average person, what they will most likely mean is the end of the era of free rewards credit card,” he says.

What does this mean for consumers?

The costs to consumers might not necessarily be implemented as fees, they could be “hidden” by reducing rewards on cashback cards or high interest bank accounts as banks try to recoup losses. The good news is, the card market is highly competitive, so if you’re not getting enough from your credit or debit card you can easily switch.

  • Switching current accounts could deliver better interest rates, lower fees or cashback as you spend, it’s worth shopping around to find an account to meet your needs.
  • By changing credit cards you could enjoy cashback on transactions, free credit for up to 36 months, pay no foreign transaction fees or collect Avios and other reward points.

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