WRITTEN QUESTION P-0050/99

by Paul Rübig (PPE) to the Commission

(15 January 1999)

Subject: Transaction fees for credit card payments abroad

With the introduction of cash at the beginning of the year 2002 exchange charges will be a thing of the past in the Euro zone. It is understood, however, that credit card companies are planning to charge transaction or handling fees instead of the present foreign exchange commissions. Consequently, where payments are made in another Member State of Economic and Monetary Union, 1 % of the value of the transaction will continue to be charged, the aim being to compensate for the loss of revenue from foreign exchange commissions.

What does the Commission think of these fees being charged by the credit card organizations, particularly in view of the future importance of electronic means of payment in business?

What measures does the Commission intend to take to prevent such fees from being charged?

Answer given by Mr Monti on behalf of the Commission

(19 February 1999)

The Commission agrees with the observation of the Honourable Member that currency exchange risk between the national currency units of the euro zone and commissions intended to cover the risk are a thing of the past in the euro zone since 1 January 1999.

The charging structure for credit cards is a complex subject, which raises a number of issues. The Honourable Member reasons from the hypothesis that the former "spreads" (differences between buying and selling rates) charged by banks for credit card payments in foreign currency purchases were single purpose charges attributable entirely to foreign currency risk. This is not how banks generally view the former "spreads". These were in fact often used as the sole charging mechanism by most banks, producing revenue which (as they see it) defrayed the extra costs of the cross-border transaction, compared with a domestic one. Part of that "spread" was paid to the international card payment clearing body which ensured the clearing and settlement of the transaction amount.

The Commission shares the wish of the Honourable Member to see an end to the disparity between the costs of domestic and cross-border payments, whether by credit card, credit transfer or other means. However in a free market this can be achieved only by measures which encourage transparency and thus competition, rather than trying to impose it.

The increased transparency brought about by economic and monetary union (EMU) will show customers what they are paying instead of hiding it in a "spread". Ultimately there is no reason in principle why these higher charges should be required, provided that the costs to banks of cross-border business do not significantly exceed the costs of providing the equivalent domestic transactions. At present however there remain some significant differences, due mainly to different technical standards. The elimination of such differences should enable cost reductions to be made.

In addition to its recommendations on transparency in this area (Recommendation 98/286/EC(1)) the Commission has for some years actively encouraged the banking community to deal with differences in standards for all types of cross-border payment and to establish closer cross-border links between their systems. Some committees are working on these issues (e.g. the European committee for banking standards). The Commission will continue to encourage banks to come forward with improvements in their systems.

In addition, the Commission will issue a communication in spring 1999 covering the policy relating to payment systems in EMU. Political impetus in favour of such a communication was very much in evidence at the first meeting of the financial services policy group held on 28 January 1999, chaired by the Commission. This group of personal representatives of finance ministers, set up under the framework for action for financial services, agreed that introduction of the euro had brought a number of issues to the fore, including the fact that the infrastructure to help citizens to effect small-value cross-border payments has lagged behind developments at the wholesale level. The Commission's communication will therefore outline an integrated strategy encompassing all remaining obstacles to efficient cross-border retail payments in euro, including payment cards, cheques and transfers.

(1) OJ L 130, 1.5.1998.