International settlement and clearing companies Visa Inc. and Mastercard Inc. have made a pact with the European Union to end massive foreign charges for foreign transactions on debit and credit cards.
Nearly two decades of antitrust scrutiny have ended last April 29, 2019, with both companies agreeing to less 40% of fees from foreigners shopping in the European countries.
In the deal, BBC reported that the European Commission said, the settlement will help lower prices for European retailers to do their business.
“This, together with our January 2019 decision on Mastercard’s cross border card payment services, will lead to lower prices for European retailers to do business, ultimately to the benefit of all consumers,” said EU Competition Commissioner Margrethe Vestager.
Under the agreement, the debit charge will only be 0.2 per cent per transaction while for credit cards, the charge will fall at 0.3 per cent. The change in the fees and charges must be applied within six months and will last for about 5 1/2 years. If these two companies will not follow what’s written on the pact, they will be fined.
Meanwhile, online transactions have a slightly higher charge that will be about 1.15 per cent as it has a higher risk of fraud and additional value for global e-commerce.
Consumers will surely benefit from this change, no doubt. However, banks will be most affected by the lowered transaction rates, especially banks like JPMorgan Chase & Co. and Citigroup Inc. These two have the biggest portfolio of cardholders who love to shop around the world.
For businesses in the EU countries, they can benefit in terms of servicing more customers. With the charge being low, more people will have the confidence to shop without thinking of massive fees.
In January 2019, Mastercard was fined €570 million for limiting its service to some states because of lower interchange fees.