Proposal To Reduce Interchange Fee Triggers Concern In Belgium

July 26, 2023
Belgium’s banking association has said it is "especially worried" about a proposed reduction in interchange fees, but there are suggestions that the government may just be bluffing ahead of an election.

Belgium’s banking association has said it is "especially worried" about a proposed reduction in interchange fees, but there are suggestions that the government may just be bluffing ahead of an election.

In a statement published last week, Febelfin, the Belgian banking association, reminded the government that Belgium’s interchange fees are already among the lowest in Europe.

Feblefin added that these fees are used by banks to fund their issuance of payment cards and to support payment innovations, such as instant payments, contactless and mobile payments like Payconiq.

“A reduction in this commission will have the effect of considerably curbing innovation in the Belgian payments market,” the association said.

In the EU, firms need to comply with the Interchange Fee Regulation, which sets the interchange fee in the trading bloc at a maximum of 0.2 percent of the transaction value for debit cards.

However, there is a derogation clause for member states that allows them to set a lower fee.

Some of Belgium’s neighbours, such as the Netherlands and Luxembourg, have already done this, but others, such as France and Germany, still use the default level set by the EU in 2015.

"There is a disadvantage for Belgian issuers compared to issuers in countries who use the minimum set in the Interchange Fee Regulation," a Febelfin spokesperson told VIXIO.

“The official motivation to take this legal initiative lies in the recent changes to Belgian law where merchants now have to accept a form of electronic payment.”

Since July 2022, Belgian legislation requires all consumer-facing merchants to provide their customers with at least one solution that allows them to pay for their purchases electronically.

Febelfin said this convinced the country’s minister for economy, Pierre-Yves Dermagne, that due to higher transaction volumes, issuers would be able to charge a lower fee.

Other observers noted that there is also the chance that the move relates to next year's federal election in Belgium, which is tipped to take place in the summer.

"My take is that this is just noise, as there is an election on the horizon and populism is all the rage right now," said Kjeld Herreman, head of strategic advisory at RedCompass.

Speaking to VIXIO, Herreman said politicians are trying to pressure the banks into raising interest rates, a move that has been criticised by both the National Bank of Belgium and commercial banks. "It would be a short-term fix for long-term issues."

"Politicians are doing whatever they can to agitate the banks and get them to increase interest rates out of fear of more regulation, hence the suggestion that interchange fees will be lowered," said Herreman.

"The reason that the government is suggesting a reduction is to woo merchants and put pressure on the likes of Worldline and the banks to decrease costs," he said.

"This would probably decrease costs for merchants in the short run, but in the long run, this is less likely."

Febelfin also suggested that a reduction in this commission will destabilise the local payments ecosystem in Belgium.

For example, foreign card issuers will have a considerable advantage over Belgian card issuers, as they can charge the cross-border rate, and this is almost always higher than the Belgian rate.

An increase in the number of foreign cards on the Belgian market could therefore be very negative for local merchants, as they will be charged the tariff applied in the country of origin of these cards.

"If domestic interchange fees are reduced, then Belgium will be playing into the hands of foreign cards,” said Herreman.

“It would be quite impactful on banks in Belgium, as this is one of the last ways to make money from cards. The business case for continuing to service clients would be difficult."

In addition, unlike large retailers, a small merchant is not billed separately for these different elements of the fee package, such as a rented terminal.

Febelfin, therefore, suggests that it is unlikely that a reduction in the interchange fee will lead to a reduction in the total cost for the merchant or the consumer.

The association further notes that due to time constraints, the government's justification of the original proposal was based on superficial research and incomplete information.

“We ask the government to reconsider its decision and to conduct an in-depth debate on the costs of the payments by carrying out the necessary impact studies,” said the association.

“Febelfin would like to contribute to this debate, because the long-term consequences will be very negative not only for Belgian banks but also for the payment market and for merchants.”

Pierre-Yves Dermagne, Belgium’s minister for economy and labour, has been approached for comment, but had not responded by time of publication.

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