(7)

Preparation of legislation is under way in several Member States (21) to regulate interchange fees, covering a number of issues, including caps on interchange fees at various levels, merchant fees, the Honour All Cards rules or steering measures. The existing administrative decisions in some Member States vary significantly. In view of the harmfulness of interchange fees to retailers and consumers , a further introduction of regulatory measures at national level aimed at addressing the level or divergencies of these fees is anticipated. Such national measures would be likely to lead to significant barriers to the completion of the internal market in the area of cards, internet and mobile payments based on cards and would therefore hinder the freedom to provide services.

(7)

Preparation of legislation is under way or already completed in several Member States (21) to regulate interchange fees, covering a number of issues, including caps on interchange fees at various levels, merchant fees, the Honour All Cards rules or steering measures. The existing administrative decisions in some Member States vary significantly. To make the levels of interchange fees more consistent , a further introduction of regulatory measures at national level aimed at addressing the level of or divergences between these fees is anticipated. Such national measures would be likely to lead to significant barriers to the completion of the internal market in the area of cards, internet and mobile payments based on cards and would therefore hinder the freedom to provide services.

(8)

Payment cards are the most frequently used electronic payment instrument for retail purchases. However, integration of the Union payment card market is far from complete as many payment solutions cannot develop beyond their national borders or new pan-Union providers are prevented from entering the market. The lack of market integration currently results in higher prices and less choice in payment services for consumers and retailers, and more limited opportunities to take advantage of the internal market. There is therefore a need to remove obstacles to the efficient functioning of the card market, including mobile and internet payments that are based on card transactions which still pose barriers to the deployment of a fully integrated market .

(8)

Payment cards are the most frequently used electronic payment instrument for retail purchases. However, integration of the Union payment card market is far from complete as many payment solutions cannot develop beyond their national borders or new pan-Union providers are prevented from entering the market. To take full advantage of the internal market, there is a need to remove obstacles to the integration of new card-payment options , including mobile and internet payments that are based on card transactions.

(9)

To enable the internal market to function effectively, the use of electronic payments should be promoted and facilitated to the benefit of retailers and consumers. Cards and other electronic payments can be used in a more versatile manner, including possibilities to pay online in order to take advantage of the internal market and e-commerce, whilst electronic payments also provide retailers with potentially secure payments. Card and card based payments instead of cash use could therefore be beneficial for retailers and consumers, provided the fees for the use of the payment systems are set at an economically efficient level, whilst contributing to innovation and market entry of new operators.

(9)

To enable the internal market to function effectively, the use of electronic payments should be promoted and facilitated to the benefit of retailers and consumers. Cards and other electronic payments can be used in a more versatile manner, including possibilities to pay online in order to take advantage of the internal market and e-commerce, whilst electronic payments also provide retailers with potentially secure payments. Card and card based payments instead of cash use could therefore be beneficial for retailers and consumers, provided the fees for the use of the payment systems are set at an economically efficient level, whilst contributing to fair competition, innovation and market entry of new operators.

(10)

One of the key practices hindering the functioning of the internal market in card and card-based payments is the widespread existence of interchange fees , which are in most Member States not subject to any legislation. Interchange fees are inter-bank fees usually applied between the card-acquiring payment service providers and the card-issuing payment service providers belonging to a certain card scheme. Interchange fees are a main part of the fees charged to merchants by acquiring payment service providers for every card transaction. Merchants in turn incorporate these card costs in the general prices of goods and services. Competition between card schemes appears in practice to be largely aimed at convincing as many issuing payment service providers (e.g. banks) as possible to issue their cards, which usually leads to higher rather than lower interchange fees on the market, in contrast with the usual price disciplining effect of competition in a market economy. Regulating interchange fees would improve the functioning of the internal market.

(10)

In most Member States, interchange fees are not subject to any legislation but, rather, to decisions of the national competition authorities . Interchange fees are inter-bank fees usually passed from card-acquiring payment service providers to card-issuing payment service providers belonging to the relevant scheme. Interchange fees are a main component of the fees charged to merchants by acquiring payment service providers for every card transaction. Merchants in turn incorporate these card costs , like all their other costs, in the general prices of goods and services. Consistent application of the competition rules to interchange fees would reduce transaction costs for consumers and thus improve the functioning of the internal market.

(11)

The currently existing wide variety of interchange fees and their level prevent the emergence of ‘new’ pan Union players on the basis of business models with lower interchange fees, to the detriment of potential economies of scale and scope and their resulting efficiencies. This has a negative impact on retailers and consumers and prevents innovation. As Pan-Union players would have to offer issuing banks as a minimum the highest level of interchange fee prevailing in the market they want to enter it also results in persisting market fragmentation. Existing domestic schemes with lower or no interchange fees may also be forced to exit the market because of the pressure from banks to obtain higher interchange fees revenues. As a result, consumers and merchants face restricted choice, higher prices and lower quality of payment services while their ability to use pan-Union payment solutions is restricted. In addition, retailers cannot overcome the fee differences by making use of card acceptance services offered by banks in other Member States. Specific rules applied by the payment schemes require the application of the interchange fee of the ‘Point of Sale’ (country of the retailer) for each payment transaction. This prevents acquiring banks from successfully offering their services on a cross border basis. It also prevents retailers from reducing their payment costs to the benefit of consumers.

(11)

The currently existing wide variety of interchange fees and their level prevent the emergence of ‘new’ pan Union players on the basis of business models with lower or no interchange fees, to the detriment of potential economies of scale and scope and their resulting efficiencies. This has a negative impact on retailers and consumers and prevents innovation. As Pan-Union players would have to offer issuing banks as a minimum the highest level of interchange fee prevailing in the market they want to enter it also results in persisting market fragmentation. Existing domestic schemes with lower or no interchange fees may also be forced to exit the market because of the pressure from banks to obtain higher interchange fees revenues. As a result, consumers and merchants face restricted choice, higher prices and lower quality of payment services while their ability to use pan-Union payment solutions is restricted. In addition, retailers cannot overcome the fee differences by making use of card acceptance services offered by banks in other Member States. Specific rules applied by the international card payment schemes require , on the basis of their territorial licensing policies, the application of the interchange fee of the ‘Point of Sale’ (country of the retailer) for each payment transaction. This prevents acquirers from successfully offering their services on a cross-border basis. It can also prevent retailers from reducing their payment costs to the benefit of consumers.

(15)

This Regulation follows a gradual approach. As a first step, it is necessary to take measures to facilitate cross-border issuing and acquiring of payment card transactions. Allowing merchants to choose an acquirer outside their own Member State ( ‘cross border acquiring’) and imposing a maximum level of cross border interchange fees for cross border acquired transactions should provide the necessary legal clarity. In addition, licences for issuing or acquiring of payment instruments should be valid without geographic restrictions within the Union. These measures would facilitate the smooth functioning of an internal market for card, internet and mobile payments, to the benefit of consumers and retailers .

(15)

In order to facilitate the smooth functioning of an internal market for card, internet and mobile payments, to the benefit of consumers and retailers, this Regulation applies to cross-border and to national issuing and acquiring of payment card transactions. If merchants can choose an acquirer outside their own Member State ( ‘cross-border acquiring’), which will be facilitated by the imposition of the same maximum level of both domestically and cross-border interchange fees for acquired transactions and the prohibition of territorial licensing, it should be possible to provide the necessary legal clarity and to prevent distortions of competition between payment-card systems .

(16)

As a consequence of unilateral undertakings and commitments accepted in the framework of competition proceedings, many cross-border card payment transactions in the Union are already carried out respecting the maximum interchanges fees applicable to the first phase of this Regulation. Therefore, the provisions relating to those transactions should enter into force quickly, creating opportunities for retailers to seek cheaper acquiring services cross-border, and incentivising domestic banking communities or schemes to lower their acquiring fees .

(16)

As a consequence of unilateral undertakings and commitments accepted in the framework of competition proceedings, many cross-border card payment transactions in the Union are already carried out respecting the maximum interchanges fees . In order to provide for fair competition in the market for acquiring services, the provisions relating to cross-border and to national transactions should apply simultaneously and within a reasonable period after entry into force of this Regulation, taking account of the difficulty and complexity of the migration of payment-card systems, which this Regulation necessitates .

(17)

For domestic transactions , a transition period is necessary to provide payment services providers and schemes with time to adapt to the new requirements. Therefore, after a two year period following the entry into force of this Regulation and in order to provide for a completion of an internal market for card-based payments, the caps on interchange fees for consumer card transactions should be extended to cover all, cross-border and domestic payments.

(17)

However , a transitional period is necessary to provide payment services providers and schemes with time to adapt to the new requirements. Therefore, after a one- year period following the entry into force of this Regulation and in order to provide for a completion of an internal market for card-based payments, the caps on interchange fees for consumer card transactions should cover all, cross-border and domestic payments.

(18)

In order to facilitate cross border acquiring all (cross-border and domestic) ‘consumer’ debit card transactions and card based payment transaction should have a maximum interchange fee of 0,20  % and all (cross-border and domestic) consumer credit card transactions and card based payment transactions based on those should have a maximum interchange fee of 0,30  % .

(18)

All debit card transactions and card based payment transaction should have a maximum interchange fee of 0,2  % and all credit card transactions and card based payment transactions based on those should have a maximum interchange fee of 0,3  % .

(18a)

The impact assessment shows that a prohibition of interchange fees for debit card transactions would be beneficial for card acceptance, card usage, development of the single market and generate more benefits to merchants and consumers than a cap set at any higher level. Moreover it would avoid negative effects on national systems with very low or zero interchange fees for debit transaction by a higher cap due to cross border expansion or new market entrants increasing fee levels to the level of the cap. A ban on interchange fees for debit card transactions also addresses the threat of exporting the interchange fee model to new, innovative payment services such as mobile and online systems.

(19a)

In accordance the basic principles of the internal market, acquirers should be able to provide their services to merchants throughout the Union applying the multilateral interchange fees (MIFs) that they apply in their national market. They should not apply higher MIFs to cross-border transactions than they apply to national transactions.

(22)

Payment card transactions are generally carried out on the basis of two main business models, so-called three party payment card schemes (cardholder — acquiring and issuing scheme — merchant) and four party payment card schemes (card holder- issuing bank- acquiring bank- merchant). Many four payment card party schemes are using an explicit interchange fee, mostly multilateral. Interchange fees (fees paid by acquiring banks to incentivise card issuing and card use) are implicit in three party payment card schemes. To acknowledge the existence of implicit interchange fees and contribute to the creation of a level playing field, three party payment card schemes using payment service providers as issuers or acquirers should be considered as four party payment card schemes and should follow the same rules, whilst transparency and other measures related to business rules should apply to all providers.

(22)

Payment card transactions are generally carried out on the basis of two main business models, so-called three party payment card schemes (cardholder — acquiring and issuing scheme — merchant) and four party payment card schemes (card holder- issuing bank- acquiring bank- merchant). Many four payment card party schemes are using an explicit interchange fee, mostly multilateral. Interchange fees (fees paid by acquiring banks to incentivise card issuing and card use) are implicit in three party payment card schemes. To acknowledge the existence of implicit interchange fees and contribute to the creation of a level playing field, three party payment card schemes using payment service providers as issuers or acquirers should be considered as four party payment card schemes and should follow the same rules, whilst transparency and other measures related to business rules should apply to all providers. Three-party schemes should accept transactions made using their cards from any acquirer based on general card transaction standards and acquiring rules comparable to the merchant rules for the specific three party schemes and with interchange caps in accordance with this Regulation.

(23)

It is important to ensure that the provisions concerning the interchange fees to be paid or received by payment service providers are not circumvented by alternative flows of fees to issuing payment services providers. To avoid this, the ‘net compensation’ of fees paid and received by the issuing payment service provider from a payment card scheme should be considered as the interchange fee. When calculating the interchange fee, for the purpose of checking whether circumvention is taking place the total amount of payments or incentives received by an issuing payment services provider from a payment card scheme with respect to the regulated transactions less the fees paid by the issuing payment services provider to the scheme should be taken into account. Payments, incentives and fees considered could be direct (i.e. volume-based or transaction-specific) or indirect (including marketing incentives, bonuses, rebates for meeting certain transaction volumes).

(23)

It is important to ensure that the provisions concerning the interchange fees to be paid or received by payment service providers are not circumvented by alternative flows of fees to issuing payment services providers. To avoid this, the ‘net compensation’ of fees paid and received by the issuing payment service provider , including possible authorisation charges, from a payment card scheme should be considered as the interchange fee. When calculating the interchange fee, for the purpose of checking whether circumvention is taking place the total amount of payments or incentives received by an issuing payment services provider from a payment card scheme with respect to the regulated transactions less the fees paid by the issuing payment services provider to the scheme and the monetary incentives or equivalent received by a cardholder from a payment card scheme should be taken into account. All payments, incentives and fees , whether direct (i.e. volume-based or transaction-specific) or indirect (including marketing incentives, bonuses, rebates for meeting certain transaction volumes). In checking circumventions of this Regulation providing for the maximum amount of interchange fees, the profit of payment card issuers that results from special programmes carried out jointly by payment card issuers and payment card schemes, and revenue from processing, licensing and other fees providing revenue to card organisations should, in particular, be taken into account.

(30)

For the effective functioning of the limitations to the Honour All Cards Rule certain information is indispensable. First, payees should have the means to identify the different categories of cards. Therefore, the various categories should be identifiable visibly and electronically on the device. Secondly, also the payer should be informed about the acceptance of his payment instrument(s) at a given point of sale. It is necessary that any limitation on the use of a given brand to be announced by the payee to the payer at the same time and under the same conditions as the information that a given brand is accepted.

(30)

Payees and payers should have the means to identify the different categories of cards. Therefore, the various categories should be identifiable electronically and for newly issued card based payment instruments also visibly on the device or on the payment terminal . Secondly, also the payer should be informed about the acceptance of his payment instrument(s) at a given point of sale.

(30a)

A payment is an agreement between the payer and the payee. In order to ensure that competition between brands is effective, it is important that the choice of payment application be made by users, not imposed by the upstream market, comprising payment card systems, payment service providers or processors. Such an arrangement should not prevent payers and payees from setting a default choice of application, where technically feasible, provided that that choice can be changed for each transaction. If the payee selects an application supported by both, the user should be able to reject it and choose another application.

(31)

In order to ensure that redress is possible where this Regulation has been incorrectly applied, or where disputes occur between payment services users and payment services providers, Member States should establish adequate and effective out-of-court complaint and redress procedures. Member States should lay down rules on the penalties applicable to infringements of this Regulation and should ensure that those penalties are effective, proportionate and dissuasive and that they are applied.

(31)

In order to ensure that redress is possible where this Regulation has been incorrectly applied, or where disputes occur between payment services users and payment services providers, Member States should establish adequate and effective out-of-court complaint and redress procedures. Member States , following guidelines set up by the European Supervisory Authority (European Banking Authority) (‘EBA’), established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council  (1a) , should lay down rules on the penalties applicable to infringements of this Regulation and should ensure that those penalties are effective, proportionate and dissuasive and that they are applied.

(a)

transactions with commercial cards,

(b)

cash withdrawals at automatic teller machines and

(b)

cash withdrawals or transactions other than sales of goods or services performed at automatic teller machines and cash disbursements at the counter of payment service providers' premises; and

(c)

transactions with cards issued by three party payment card schemes.

(c)

transactions with cards issued by three party payment card schemes where their volume does not exceed a threshold set by the Commission;

(4)

‘debit card transaction ’ means an card payment transaction included with prepaid cards linked to a current or deposit access account to which a transaction is debited in less than or 48 hours after the transaction has been authorised/initiated.

(4)

‘debit transaction by card ’ means a card-based payment transaction linked to a current or deposit access account to which the transaction is debited immediately upon being cleared, as well as a transaction with a prepaid card;

(5)

‘credit card transaction’ means an card payment transaction where the transaction is settled more than 48 hours after the transaction has been authorised/initiated;

(5)

‘credit transaction by card ’ means a card based payment transaction which is debited at least two business days after the transaction has been authorised/initiated.

(8)

‘cross-border payment transaction’ means a card payment or card-based payment transaction initiated by a payer or by a payee where the payer's payment service provider and the payee's payment service provider are established in different Member States or where the payment card is issued by an issuing payment service provider established in a different Member State than that of the point of sale;

(8)

‘cross-border payment transaction’ means a card payment or card-based payment transaction initiated by a payer or by a payee where the payer's payment service provider or the point of sale is established in a different Member State than that of the payee's payment service provider or where the payment card is issued by an issuing payment service provider established in a different Member State than that of the point of sale , including where a payee uses the services of an acquirer located in another Member State ;

(12a)

(13)

‘payment card scheme’ means a single set of rules, practices, standards and/or implementation guidelines for the execution of payment transactions across the Union and within Member States, and which is separated from any infrastructure or payment system that supports its operation;

(13)

‘payment scheme’ means a single set of rules, practices, standards and/or implementation guidelines for the execution of payment transactions across the Union and within Member States, and which is separated from any infrastructure or payment system that supports its operation;

(15)

‘three party payment card scheme’ means a payment card scheme in which payments are made from a payment account held by the scheme on behalf of the cardholder to a payment account held by the scheme on behalf of the payee, and card based transactions based on the same structure. When a three party payment card scheme licenses other payment service providers for the issuance and/or the acquiring of payment cards, it is considered as a four party payment card scheme;

(15)

‘three party payment card scheme’ means a payment card scheme in which payments are made from a payment account held by the scheme on behalf of the payer to a payment account held by the scheme on behalf of the payee, and card based transactions based on the same structure. When a three party payment card scheme licenses other payment service providers for the issuance and/or the acquiring of payment cards , or issues payment cards with a co-brand partner or through an agent , it is considered as a four party payment card scheme;

(a)

the development of cardholder fees;

(b)

the level of competition among payment card providers and schemes;

(c)

the effects on costs for the payer and the payee;

(d)

the levels of merchant pass-through of the reduction in interchange levels;

(e)

the technical requirements and its implications for all the parties involved;

(f)

the effects of co-badging on user-friendliness, in particular for the elderly and other vulnerable users.