The corporate welfare of European interchange fee regulation

Since 2013, the European Commission determined that interchange fees on all card-based payments should to be regulated by the European Central Bank. It justified intervening on these hidden payments in the belief that this would reduce transaction costs for merchants and enhance transparency for card transactions. 

In 2015, the regulation became tougher, prohibiting interchange fees over 0.2% on debit cards and 0.3% in credit cards. Arguing that retailers would save $6 billion annually, they did not comprehend that every saving for European retailers continues to be paid for by European customers.

Capping interchange fees means that a retailer can enjoy the benefits of a card transaction system, without paying the full amount for the provided service. Whilst the retailer’s acquiring bank pays a lower interchange fee, the consumer’s issuing bank no longer receives a valid payment. By reducing an issuing bank’s revenue in this way, the only option is to increase charges for their consumers. This is a direct transfer of wealth from consumers to retailers, that has not been followed by any significant reduction in retail costs for consumers as predicted by the European Commission.

The countries and consumers hurt by European legislation according to the Competitive Enterprise Institute include:



  • Poland’s largest bank PKO BP will be raising its annual fee charge to customers by 25%
  • ING’s Polish Branch has recently had to eliminate all free withdrawals for customers from ATMs.


  • Customers of all the French banks Société Générale, Crédit Mutuel and BNP Paribas are now obliged to pay extra maintenance fees annually.


Some may argue that banks would have raised their fees irrespective of the regulation put forward by the European Central Bank. This is inaccurate. Jack Salmon from the Competitive Enterprise Institute notes that a banks revenue comes from only three sources:

  • Interest rates
  • Fees to customers
  • Interchange fees to merchants

If the revenue for one source is reduced, the bank has to raise revenue elsewhere. The European Central Bank’s mandated cap on interchange fees forces banks to increase fees for their local consumers.

Far from creating a competitive European economy, interchange fee regulation has stifled it. By encouraging retailers not to pay the full cost of the benefits of a transaction system, banks have had to transfer their fees and consumers have been hit the hardest. A truly innovative, competitive economy allows all stakeholders; retailers, banks and customers, to pay for and enjoy the benefits of debit and credit card transactions.