The Highland News, March 2015
These days, many of us no longer carry a lot of cash, preferring the ease and convenience of using a debit or credit card, however the use of ‘plastic money’ varies greatly throughout the EU. In Paris, for instance, your card may not be welcome even in a fairly large restaurant, but then in Amsterdam, in an attempt to reduce robberies, many small shops and even hotels, carry the sign ‘cash free zone’, and only cards are accepted and no cash is kept on the property.
Using cards while travelling overseas is a huge advantage and has all but ruled out the once common ‘traveller’s cheque’. Credit card purchases are also often exchanged at the interbank exchange rate, often the best rate you can get for currency exchange although it pays to check this with your bank or credit card provider and beware of the additional costs of withdrawing cash on credit.
Most of us understand that a debit card transaction comes directly off a bank balance, and a credit card transaction is, in effect, a loan from the credit card company. Pay within the agreed time and you may not incur any interest, but if not the costs can be high.
However, what is not always understood is that card use can be a large source of income for the banks as they levy a small fee for each debit or credit card transaction. In some countries (for example, the UK) the merchants bear all the costs and customers are not charged. Because many people routinely use their cards even for even small purchases, some smaller retailers may refuse to accept debit cards for small transactions because paying the transaction fee would absorb almost all of the profit of the sale. Retail banks of course would rather we swiped our cards than paid cash.
In the March Strasbourg plenary of the European Parliament Labour MEPs joined others from across the EU by voting in favour of a cap on the interchange fees charged by the banks on card transactions. This move is estimated to save British businesses some £480 million every year.
Because every time we use our credit or debit card in a shop the retailer is being charged for the privilege, the cost of this is ultimately added on to the purchases we make. This cost is not clear as customers are not told how much of what they are paying is to cover these fees. What MEPs voted for was to cap the fee at 0.2% of the overall transaction amount for debit cards and at 0.3% for credit cards. The capping rules will not affect ATM cash withdrawals.
Right now the fees charged can be as much as six times that of the newly capped amount. Saving European retailers these costs could bring an estimated savings of €730 million a year. As retailers in turn usually pass on the fees to the customer, the new ceilings should lead to lower prices for goods and services.