Credit cards are displayed in Montreal on Dec. 12, 2012.Ryan Remiorz/The Canadian Press
Europe doesn't want to be left in the dust.
As countries like Canada, the U.S. and Australia tackle fees that merchants and consumers must pay to credit card companies, the European Commission refuses to the sit on the sidelines. Last week the governing body released its own proposal for reining in what it believes are outrageous fees.
The proposal: a maximum interchange fee of 0.3 per cent for credit card transactions and a maximum 0.2 per cent fee for debit card transactions. That's a 68 per cent cut from Europe's estimate credit card fee average right now, according to Moody's Investors Service, and a 73 per cent cut to debit card fees.
Canada is far away from such a cap. Last week the country's Competition Tribunal punted the issue to the federal government, and Jim Flaherty quickly asked the different stakeholders to come together to hash out a plan. But there's no sense yet as to whether they're willing to work together, or if the government will have to step in and implement caps, just like Europe.
Currently when a Canadian customer buys something using a credit card, the merchant must pay a transaction fee, typically a $1.50 to $3 cut of every $100. These fees amount to roughly $5-billion per year, according to the Competition Bureau.
Australia is also in the process of rethinking its own credit card rules. In 2003, the Reserve Bank of Australia allowed retailers to add a surcharge to each purchase to cover these fees, but there are fears that the system got out of hand because retailers are adding surcharges over and above what the credit card companies require.
The U.S. system is also in flux after major retailers recently walked away from a $7.2-billion (U.S.) settlement with Visa Inc. and MasterCard Inc. that allowed surcharges in some instances, as well as the big payment to retailers to help them recoup fees they paid in the past.
Although Europe has a proposal on the table, it could take years before it becomes law. All the EU member states and the European parliament must agree to it, and after that there will be a 22-month transition period.
To understand just how dramatically the proposal would eat into credit card profits, Moody's calculated that if implemented this year, American Express would see its 2013 profit drop by $180-million – assuming the company also cut its rewards in Europe by 50 per cent.
(Tim Kiladze is a Globe and Mail banking reporter.)
Return to Streetwise home page.
The Globe has launched a Streetwise and ROB Insight newsletter, with content available exclusively to Globe Unlimited subscribers. Get the best of our exclusive insight and analysis delivered straight to your inbox in a daily e-mail curated by our editors. Sign up for it and other newsletters on our newsletters and alerts page.
Streetwise, ReportonBusiness.com's home for news and analysis from the world of finance, is available online to subscribers of Globe Unlimited.
Tim Kiladze