Eurozone banks told to ditch direct debit interchange by 2012

Europe's banks have been told that they will have to ditch interchange fees on direct debit transactions by 2012 under EU antitrust rules.

The clarification on the ruling was conveyed in a joint statement by the European Commission and European Central Bank, with the aim of encouraging the European Payments Council (EPC) to launch the Sepa direct debit (SDD) scheme on 1 November 2009.

In particular, the Commission makes clear that a general per transaction multilateral interchange fee (MIF) for direct debit transactions "does not seem justified for efficiency reasons and, therefore, does not appear compatible with EU antitrust rules".

The Commission and the ECB also note that the forthcoming approval of the revised Regulation on cross-border payments will provide a three-year transitional regime for the SDD business model.

EU authorities have already made special provision for the retention of interchange fees during this transitional period.

ECB's executive board member, Gertrude Tumpel-Gugerell, states: "The launch of Sepa direct debit is vital for the success of Sepa. We acknowledge that, after having provided clarity on the applicability of multilateral interchange fees during an interim period, this further clarifying position of the Commission now provides a clear scenario also for the long term."

The firming up of the position comes head of an EPC meeting next week, at which banking industry standard setters will determine whether the deadlines for compliance with the SDD programme are attainable.

Despite the hardening of their stance, the ECB and the Commission say they are prepared to discuss alternative revenue-generating schemes for direct debit processing post-2012.

"An MIF for error transactions could be envisaged as it may create an incentive to avoid such error transactions and, therefore, encourage the efficient functioning of the SDD scheme," says the joint statement.

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European Central Bank (ECB) European Commission

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EBAday Electronic bill presentment and payment Sepa

Comments: (1)

Jan-Olof Brunila - Swedbank - Stockholm 25 March, 2009, 07:21

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For years EU banks have struggled with the multilateral interchange fee (MIF)issue on payment card schemes and now, for a couple of years with the pan Eu direct debit (PEDD) fee as well. Why not go for a bilateral interchange fee (BIF) set-up instead? The issuers and acquirers of cards in Sweden adopted a business model with a BIF already in 1995. More than 1,5 billion transactions on payment cards are annually cleared on this BIF based business model that also has received formal approval from the Swedish Competition Authority since it doers not violate the competition legislation. The EU banks could well launch the PEDD conditioned that transactions can only take place if and when payer and payee bank have a BIF agreement in place. Set-up of such agreements incl. negotiations can be made via the internet where the payee bank would send proposals to potential payer banks, who can respond by declining and making counter proposals. An arbitration panel could be set up to resolve disagreements if the parties are willing to submit themselves to that. The EU Commission and the ECB get the launch of the PEDD, banks get paid according to requests and no transactions take place if payer and payee bank see no point in agreening on a BIF! A draw back would be that not all banks would participate in the PEDD but the PEDD would live on its own merits and if the ECB and EU Commission would like to boost the use of the PEDD they could allow a MIF if they feel that the uptake is too small!