British customers worse off after interchange fee regulation

European limits on interchange fees have hit customers the hardest. Retailers no longer pay the market interchange fee to the banks and the banks have responded by increasing their fees to consumers.

From the 10th of March 2015, the European Commission announced that interchange fees will be capped at 0.2% for debit cards and 0.3% for credit cards. The commission said this will “end increased costs for merchants and consumers” when it has done exactly the opposite.

Those under HSBC will have their entire interest payments cut, even on savings accounts.

Under Santander’s 123 account, 3.6 million people will now pay double their monthly fees. Santander said it raised its fees “because of the increased costs of running a bank, such as capital requirements and the government’s bank levy.”

Significantly, these banks have had had to “raise the cost of owning a credit card” due to the “new European limits on interchange fees.”

The laws of economics do not change across countries. If the RBA takes a similar path, consumers will pay the price of a bad policy decision.