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EU rule change threatens future of debit and credit cards

European Parliament debates proposals that would undermine the structure of the card payments system used by 47 million British consumers

The future of debit and credit cards will be put at risk today as EU proposals to change the way the card payments system is funded are debated in Brussels. The card payments industry is asking the Government to take action to protect the 47 million British cardholders from proposals which aim to reduce retailers’ contributions to the system, potentially leaving consumers to pick up the bill.

The proposed changes would place a cap on the “interchange fee” - paid by retailers on card transactions as their contribution to the card payments system which provides them with benefits such as guaranteed payments and security from fraud. The reduced income from retailers will mean that the substantial costs of providing cards, and the systems which enable customers to pay for things safely and speedily, will have to be funded in other ways.

The implications would be particularly hard-felt by the British economy as the UK accounts for over 30% of all EU card spending, and more than 70% of EU credit cards are held by British consumers. Spending on debit and credit cards in the UK accounts for a third of our national GDP - £532 billion in 2013 across 10.9 billion transactions.

The EU proposals will impact card payments, which British consumers have long enjoyed the benefits of since the first credit card was introduced to the UK in 1966. These proposals will affect the system which:

  • consumers rely upon to pay for goods and services safely and conveniently in the UK and around the world
  • has driven the huge boom in internet shopping, with British consumers spending £91 billion online in 2013
  • provides security for consumers, with card users protected from fraud, as well as the additional benefits for purchases on credit cards through Section 75 of the Consumer Credit Act
  • constantly evolves, with technological developments such as contactless cards cutting queues for consumers and retailers.

Melanie Johnson, Chair of The UK Cards Association, said:

“The EU’s proposals threaten to shatter the system that millions of consumers rely upon every day to buy goods and services. The clear benefits of safety, convenience and flexibility that debit and credit cards offer consumers and retailers are now being put at risk. We are calling on the Government to stand up for British consumers by putting their interests first in this crucial debate in Brussels.”

By accepting cards, retailers benefit from guaranteed payments, security from fraud, and the ability to do business online. While some retailers have said the benefits of these changes will be passed onto consumers through lower prices, evidence from other countries across the world where similar laws have been introduced suggests this is not the case. Even if the entire saving were passed on by retailers then consumers would save just 5p on an average debit card transaction of £45.

Demonstrating international experience, a study from the University of Chicago in 2013[2] found that in the US, where similar measures were introduced in 2010, consumers have lost out by up to $25 billion since its implementation.

Earlier this year a coalition of consumer bodies and debt charities issued a joint statement saying they are ‘highly sceptical’ that the gains for retailers will be passed on to consumers in lower prices. The statement from Christians Against Poverty [available for comment], the Centre for Responsible Credit [available for comment], the Money Advice Trust [available for comment], The Money Charity, MoneySavingExpert.com, and Toynbee Hall highlighted their collective concern of the “unintended consequences” of the proposals.

ENDS

For further information contact:

Giles Mason or Andrew Horne from The UK Cards Association on 020 3217 8436 or email Press@ukcards-ffauk.org.uk

Damon Gibbons from the Centre for Responsible Credit on 07961 869 473 or email damon.gibbons@responsible-credit.org.uk

Paul Crayston from the Money Advice Trust on 020 7653 9741 or email paul.crayston@moneyadvicetrust.org

Phill Holdsworth, from Christians Against Poverty on 01274 760748 or email phillholdsworth@capuk.org

Notes to editors:

1. Figures on spending on online purchases at British online retailers from IMRG: http://www.imrg.org/index.php?catalog=539

2. The Impact of the U.S. Debit Card Interchange Fee Regulation on Consumer Welfare: An Event Study Analysis. David S. Evans, Howard Chang, Steven Joyce. http://www.law.uchicago.edu/files/file/658-dse-hj-sj-impact-fixed.pdf

3. The joint statement from Christians Against Poverty, the Centre for Responsible Credit, the Money Advice Trust, The Money Charity, MoneySavingExpert.com, and Toynbee Hall is available at https://capuk.org/downloads/policy_and_government/Final_version_of_interchange_statement.pdf 4. As well as the US, similar rules on interchange fees have also been introduced in Australia and Spain. In all cases the changes have not led retailers to pass on their consequent savings to consumers, rather consumers have seen increased costs.

About The UK Cards Association

The UK Cards Association is the trade body for the card payments industry in the UK, representing financial institutions which act as card issuers and acquirers. Members of the Association account for the vast majority of debit and credit cards issued in the UK - issuing in excess of 56 million credit cards and 88 million debit cards - and cover the whole of the payment card acquiring market.
The Association promotes co-operation between industry participants in order to progress non-competitive matters of mutual interest; informs and engages with stakeholders to shape legal and regulatory developments; develops industry best practice; safeguards the integrity of the card payments industry by tackling card fraud; develops industry standards; and co-ordinates other industry-wide initiatives such as those aiming to deliver innovation. As an Association we are committed to delivering a card payments industry that is constantly focused on improved outcomes for the customer. www.theukcardsassociation.org.uk

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