EU Interchange Fees Cap

The EU Parliament has voted to enforce a cap on interchange fees. This means a reduction in overall payment processing costs for Adyen merchants.

This is because Adyen operates on an Interchange++ pricing structure, where merchants are charged a fixed mark-up on interchange fees.

So when the interchange rate is reduced, costs for merchants go down.

What is interchange, anyway?

When a customer pays for a purchase using a credit or debit card, the organization that serves the merchant (known as the acquirer) pays a fee to the organization that issued the payment card to the shopper (known as the issuer).

This "interchange fee" is then charged to the merchant and absorbed into the merchant commission rate or card acceptance fee.

Often, the interchange fee component is a considerable part of merchants’ total costs.

The problem with interchange fees

Currently, interchange fees across the EU vary widely by country, and are indirectly charged to merchants.

This is an issue because it means a lack of transparency and increased costs, particularly in markets with high interchange rates.

On a Europe-wide scale, the variation slows down the rollout of new payments technologies and the establishment of a genuine European Digital Single Market.

The solution – an EU-wide cap on interchange rates

The new regulation will cap interchange fees at 0.2% of the transaction value for Visa and Mastercard consumer debit cards and at 0.3% for Visa and Mastercard consumer credit cards effective as of December 2015. 

This cap is significantly lower than current rates in a number of countries, including key markets such as Austria (starting from 1.00% for Visa consumer credit cards), Germany (starting from 1.58% for Visa consumer credit and debit cards), and the UK (starting from 0.87% for Visa consumer credit cards).

For consumer debit cards, it also gives flexibility to individual EU countries to define lower percentage caps and impose maximum fee amounts.

The new interchange cap will not apply to:

  • Three-party schemes such as Diners and American Express, so long as the card is both issued and processed within the same scheme.
  • Commercial cards used only to pay business expenses.
  • After three years, the rules will also apply to three-party card schemes that license other parties to issue cards.

Furthermore, the cap applies only to European cards being used at European merchants.

To clarify, this means that a UK card used at a French merchant will fall under the cap, but a US card being used in an EU country will not. 

Pricing structures: Interchange++ versus blended rate

Payments technology providers that operate on an Interchange++ pricing structure, (such as Adyen), pass interchange fees directly to merchants with a fixed markup.

This means full transparency on costs, giving merchants the ability to see how much they are charged right down to an individual transaction level.

By contrast, with Blended pricing, the processing fee is usually established as an average processing cost across different card types plus a fixed markup, meaning that the same price is charged for every transaction.

This is simpler to understand, but not transparent, as it is not contractually linked to interchange rates.

Also, if interchange rates decrease, this is not automatically passed onto you as a change in your Merchant Service Cost (MSC).

In practice, because hidden costs and surcharges are not possible for Interchange++ pricing, it is always a more transparent, and almost always a more cost-effective pricing structure for merchants.


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