What the European Commission bluntly puts as “the result of collusion between economic players,” the Federation of French Banks calls “guarantees” of a payment method that is “convenient, innovative and delivers high security standards.” The MIFs or multilateral interchange fees are a levy for interbank services and particularly affects transactions made by card between the consumer’s bank and the merchant’s. The system has been running under supervision since 1984 by the anti-trust authorities, but EU regulation 260/2012 wants them banned altogether in 2017.
Perhaps it is fitting that the French entities are increasingly vocal against the prospect of MIFs vanishing. In 2011, 60 million new interbank cards were issued and 7.9 billion transactions recorded: one in every two payments happened in France and the UK. “Payment cards have become the preferred method of payment for the French,” the Federation explains “and, what’s more, they have paved the way for the development of advanced payment instruments from mobile payment to e-wallets”
If Brussels has its way, a recent report by the French banks said that “it would not merely be a minor adjustment of the economic model of payment cards, but would in fact broadly undermine payment card services.”
The European Commission contends that MIFs exist in a sort of legal limbo, without official admission or control, and they lack transparency. Banks haven’t yet satisfactorily answered about their supposedly demonstrable benefits, either, in Brussels’ opinion.
The pan-European watchdog will find a few details in this French leaflet: there are costs behind the interchange fees that justify their necessity, from card management, archiving, and claims to secure delivery, to fraud detection and data supply. Only when there is a single acquiring bank in a country, or costs end passed on via cross-subsidy mechanisms and recorded under other services–hiding them and claiming a false “free” operation–, MIFs can be taken out of the equation. Nothing to gain here, banks say.
More to the point, the French banks also quote a recent study by Spanish economists at the University Rey Juan Carlos, the Autonomous University of Madrid and UNED University, which revealed the impact on the market after trimming down interchange fees.
“Over the five-year period from 2006 to 2010, interchange fees were reduced by more than 57%.” But the paper concludes that “consumers in Spain did not benefit from this reduction at all. Retailers did, undoubtedly. This reduction saved them almost €2.75 billion over the five year period. More strikingly, consumer costs, mainly through annual card fees they pay to their bank, increased by a staggering 50% over the same period. This translates into an additional burden of €2.35 billion consumers had to shoulder, just for using their payment cards.”
And it didn’t stop there. “Other fees were also raised, such as those charged to consumers for overdrafts. And rewards and promotions usually associated with card payments were reduced or even eliminated.”
There might be an argument for banks to give up MIFs income and costs of the transaction system being balanced in a less taxing manner for businesses and customers, but an outright cancellation has already proved to be wrong.