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Posted by
4514 posts

It is the retailer that benefits from this, so the consumer only maybe indirectly.

The transaction fee for cards issued inside the EEA has been fixed at a maximum of 0.2 per cent of transaction value for debit cards and 0.3 per cent for credit cards for some time.

Posted by
4982 posts

The pessimist inside of me imagines the retailer who grumbles about the CC company taking a cut of his sales and justifies increasing his prices, will not magically reduce his prices due to this. Maybe a few more places will gladly accept credit cards, but that is about it.

Posted by
3445 posts

What this means, in a nut shell, is cards issued in the US and other locations will no longer be able to have the super high interchange fee charged to the merchant and will bring the merchant cost in line with what cards issued in the EU are allowed to charge. The expected result is the US issued cards with the super high merchant fees will now cost no more than any other cars and should remove any resistance from merchants for acceptance for payment. One European train company already refuses certain credit cards because they have a very high interchange fee (couldn't find an example, but remember reading a couple here on this forum over the past couple years). This has no impact on what fee your card issuer charges for anything as those fees are not covered by the rule.

While the reduction in merchant fees is supposed to benefit the customer, it is doubtful it will have any noticeable impact on prices. The merchant may not need to raise their prices as soon or as much if they get a break on the fees, but this has never shown a drop in retail prices whenever similar plans have been implemented.

Given that the interchange fee the card issuing banks receive from the merchants on credit card transactions is what pays for the mileage and cash back awards everyone likes so much, we can look forward to reduced benefits on those cards from some banks. None have announced any changes yet, but knowing banks in the US I wouldn't doubt that some of them will restrict customer rewards for purchases made in the EU that fall under the new rules. Some may not even allow transactions from Europe since the banks will not earn enough interchange to make the transactions "worth while", i.e. "profitable enough". (Just my opinion.) Or, we may see the end of no foreign fee cards as banks try to recover their lost income. Only time will tell.

Posted by
17867 posts

It might reduce the current approximately 0.9% transaction fees on ATM transactions. If you have
a bankcard that has a 3% foreign currency transaction, I doubt if your bank will reduce that.

First, the 3% fee that US banks charge for ATM usage outside the US is totally their own creation. The "Network", which is collectively M/C, Visa, Plus, Cirrus, and a few others, charges your bank approximately 1% to handle the transaction (paying the ATM owner and collecting from your bank), ~½% for the transaction and ~½% for currency exchange. The 1% charged by the Network has nothing to do with the MIF. Major US banks, like Chase or US Bank, who have foreign currency operations, pay the network in euro, therefore only paying the network ~½%. They then turn around and charge you 3%, of which 2½% is profit for them.

BTW, Wells Fargo only charges $5 for foreign ATM withdrawals (about 1% on a $500 w/d). They have dropped the 3% currency exchange fee.

Credit unions and smaller, local banks, without foreign currency operations pay the 1% to the Network. My credit union passes on the 1% the paid and then charges me an additional $1 for using the foreign ATM. I used to use a local bank that charged an additional 1% (2% total) plus a couple of dollars.

Banks like Capital One, which have no charge for foreign ATM usage are absorbing the ½% transaction fee as a cost of servicing your account.

Changing the MIF has no effect on ATM transactions.

Point of Sale (POS) transactions are entirely different. For every dollar you charge on you credit card, your US bank (through the Network) gives the merchant 96 cents. That 4% they keep is called the "Interchange fee". It's out of that fee that they pay you travel miles or cash back. When the EU limited the Interchange fee that European credit card could charge European merchants, they exempted US credit cards from the limit. Apparently, now, they have used a little political arm-twisting to get the US CC companies to lower their Interchange fees. This should lower a little the price everyone pays for goods in Europe, but it will not directly affect us noticeably. However, it might eventually change the "rewards" credit card companies give for transactions in Europe.

One European train company already refuses certain credit cards
because they have a very high interchange fee

I'm not sure which rail company that is, but I know a little over a year ago, when I purchased Sparpreis tickets from the Bahn using my US credit card, I paid a small surcharge (a few percent, not 4%) on top of the fare (plus 3% to my bank for currency exchange).

Posted by
3445 posts

A couple corrections:

  1. Card issuing banks settle in their native currency. That means Chase, Well, and every other US based bank, never see a Euro, Pound, Yen, Peso, or anything else other than USD when settling credit and debit card transactions. It used to be different (last century), but now the card networks move so much money (Trillions of Dollars just in the US every day) they get the best rates and pass that on to the banks. This is why the 3% or whatever foreign exchange fee those banks charge is so annoying -- they do absolutely nothing to earn it.

  2. Interchange averages 4%. It goes much higher on those cards that pay the highest mileage or cash rewards. There is one which charges 12%, but due to the limited locations it can be used is known to the merchants and they begrudgingly accept it. Why are the merchants the ones forced to pay for the rewards programs? The worst part of this is a merchant has no way of knowing what the interchange will be on a transaction until they get the bill for it. Over time, larger merchants can track and determine by the card numbers which will cost more and choose to not allow purchases from those cards.