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The EU introduced price caps on interchange in 2015 capping interchange on credit cards at 0.3% and debit cards at 0.2%. That’s almost an order-of-magnitude lo

The EU introduced price caps on interchange in 2015 capping interchange on credit cards at 0.3% and debit cards at 0.2%. That’s almost an order-of-magnitude lower than interchange fees in the US, which are usually around the 1%-2% level. This is big part of the reason you don’t see high value reward cards or cashback program in the EU. There simply isn’t the interchange revenue to fund them, which is good thing, because high interchange + cashback creates a nasty regressive tax that transfers vast amounts on wealth from those with poor credit ratings (usually the least well off society) to those with high credit ratings (usually the most well off in society).

adrr 4y ago
How do credit cards provide 60 day interest free loan with only 0.3% charge to the merchants? I can see low interchange rates for debit cards like the US the interchange for debit card for major banks is capped at 0.05%.
- dagw 4y ago
  There is often a small annual fee connected with having a credit card (I think I pay on the order of $25 a year). Also effective interest rates are in the 15-25% range for most cards if you don't pay it off in full, which I'm sure quickly adds up.
  - hocuspocus 4y ago
    Zero-fee credit cards exist: https://www.advanzia.com/en-gb/customers https://www.advanzia.com/en-gb/customers
- hocuspocus 4y ago
  0.3% over 60 days (in practice more like 15 to 45, only commercial cards have longer billing cycles) was really not that bad during a decade of near zero interest rates. And now that banks will finally make a bit more money on mortgages and other kinds of loans, I assume they don't mind the increasing cost of their customers' credit balance.
- sofixa 4y ago
  > How do credit cards provide 60 day interest free loan with only 0.3% charge to the merchants They don't. They're rare, only do 30 days, and are often paid (you pay monthly/yearly for the pleasure).
  - adrr 4y ago
    30 day billing cycle with 30 days to pay. Between 30 days and 60 days before payment.
    - sofixa 4y ago
      Not how they work in EU countries i know of (France and Bulgaria). You have a 30 days billing period, and then around a week to pay.
- axelthegerman 4y ago
  By charging exorbitant interest for folks who don't pay off their balance in full. Which kind of reminds me of SaaS products that offer a free tier to sell you on the premium subscriptions
  - hocuspocus 4y ago
    I really doubt that many credit card holders are actually using the revolving credit in Europe. For starters in most European countries, you are probably not going to qualify unless you're rich enough to pay your bills in full every month.
    - tialaramex 4y ago
      You can doubt it if you want, but the Credit Reference Agencies make a big fraction of their money because this is in fact possible. Say I'm Big Bank, and I want to launch a card I'm calling "Bonus Credit". I want to target customers who mostly will pay me, eventually, but aren't so flush that they can pay their full balance every month (e.g. they buy their summer break in January, pay it off over the next 3-4 months). I call Jumbo National Credit and I offer them £25 per sign-up if they give me customers who have no super-negative credit events in the past say, 12 months but are say 75-95% on recent payment history. Jumbo present this as a "Pre-qualified" instant Credit Card option for customers who match the profile, on their free web site. Click now, you are guaranteed to be accepted. Customers don't even realise they're reading an advert. You may have noticed that although 30 years ago "Credit score" was something you needed to go out of your way to discover, today you can get your score on a web site - sign up today to see it instantly. Why are these companies telling you something that was once an important trade secret ? Because these sites are now effectively marketing for 3rd party credit products. AIUI Experian invented this, I worked with people who were in a small rogue group at Experian which proposed instead of fighting the government to keep it secret they should turn access into a revenue source, they were laughed at internally more or less up until the record profits rolled in and then suddenly it was champagne and bonuses.
    - rootusrootus 4y ago
      > I really doubt that many credit card holders are actually using the revolving credit in Europe. Guessing you are in Germany and extrapolating? It varies quite a bit by country. https://www.spendesk.com/blog/credit-card-statistics/ https://www.spendesk.com/blog/credit-card-statistics/
- ar0 4y ago
  There are lots of other ways credit card companies can make money: - Higher interchange fees when you purchase something outside of the EEA - Currency conversion when you buy something not in EUR - High interest payments when you do not pay off your balance in full on time On average, it will also not be a 60 day interest free loan: the "average" transaction will happen in the middle of the billing cycle, so that gives you 15 days until the invoice is sent, and many people I know pay their invoices much earlier than after the 30 days payment term.
khuey 4y ago
Debit card fees in the US have been capped at $0.22 + 0.05% for more than a decade.
- dagw 4y ago
  Which is still over 1% for purchase under $20
  - mardifoufs 4y ago
    But still less than the EU's 0.2% cap for any serious purchase. (Over ~120$, so I'm sure it evens out)
  - woobar 4y ago
    Why do merchants in Germany have minimum transaction amounts for card purchases then?
- MarkSweep 4y ago
  Only for large banks. Search “ durbin exempt interchange”.
  - khuey 4y ago
    Last I looked at the numbers most transactions were covered by the Durbin Amendment. Interchange fees for exempt single message (PIN) transactions had also fallen to basically the cap. It was really only exempt double message (signature) transactions that were still expensive.
kmlx 4y ago
> you don’t see high value reward cards or cashback program in the EU. this seems like a false statement. here is an article from 2021 that highlights some of the numerous cashback offers: https://medium.com/@danminea/best-cashback-cards-with-rewards-available-in-europe-2021-e30f7fa49b3c https://medium.com/@danminea/best-cashback-cards-with-reward... and Amex usually has cashback cards as well. disclaimer: i have used some of these cashback cards both in the EU and outside of it.
- TheCoelacanth 4y ago
  Key part of the phrase "high value". Some US cards give back ~2% on all purchases. The best of those appears to be 1% on purchases at six specific retailers or 0.1% on purchases in the EU/1% outside of the EU. Many of them don't even give cash back, they give their own cryptocurrency that they made up out of thin air.
- hocuspocus 4y ago
  > and Amex usually has cashback cards as well. The cap applies on 4-party schemes, not Amex (nor Diners, Discovery).
- triceratops 4y ago
  These are not high value rewards cards. You should see what the US has.
- avianlyric 4y ago
  From the very article you link too, about three paragraphs in: > Why then are there so few and apart offers for cashback cards that can be used in Europe? > > One explanation I’ve seen is this: they’re not so common in the EU because our debit/credit card fees are regulated and very low.
  - conductr 4y ago
    This is the answer. In the US the business essentially funds the rewards these cards provide because they can charge whatever interchange fee that card has decided.
mensetmanusman 4y ago
I feel bad about our high CC rewards in the US for exactly this reason. Usury was a sin in all religions for millennia, but not in the US.
rgbrenner 4y ago
"because high interchange + cashback creates a nasty regressive tax" There's an interchange surcharge for rewards cards. Stripe bundles this all together to make the pricing simpler.. but most merchants use traditional merchant accounts, and they are charged based on the type of card used. Edit: For example, here's visa's interchange fees: https://usa.visa.com/content/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees.pdf https://usa.visa.com/content/dam/VCOM/download/merchants/vis...
- avianlyric 4y ago
  Doesn’t really change anything. VISA and Mastercard rules also prevent merchants from discriminating based on card type, either you except all VISA/Mastercard cards, or you except none. So the exact manner in which they’re billed to merchants is kinda irrelevant, the cost ends up being spread over all consumers, regardless of their ability to recover the money via cashback or rewards.
  - deleted 4y ago
    [deleted]
  - rgbrenner 4y ago
    Prices aren't set based on costs. Prices are set at the maximum the market will bear. If you've ever set prices for a product, you would see this yourself. Price*Volume=Revenue Consumers dont care if you can pay for the inputs to your product. They obtain a certain value from your product and have a certain expectation of what the price should be, and if your costs are above that, consumers are happy to watch you go out of business. In fact, inability to increase prices over time while inflation increases the cost of inputs, is one of the ways the economy pushes marginal business out of the market.
    - avianlyric 4y ago
      > If you've ever set prices for a product, you would see this yourself. Price*Volume=Revenue If your market is completely elastic, then sure. But only hypothetical markets (and perhaps some fungible goods) are completely elastic. Most markets don’t have a perfect linear correlation between price and demand. The other things you’ve completely ignored, is the fact that interchange impacts all sellers equally. So as a consumer you can’t avoid the interchange tax by shopping around, which in turn will increase a consumer’s willingness to pay higher prices. This may come as a surprise to you, but consumers don’t have a perfect way to calculating the value of something. Ironically, the perceived value of a product is highly influenced by both its price, and the price of its competitors (with Veblen goods being the extreme). So if you introduce a flat 2% price increase across all sellers, then it’s reasonable to expect consumers value perception to increase by a similar amount.
dkjaudyeqooe 4y ago
> This is big part of the reason you don’t see high value reward cards or cashback program in the EU. Interestingly my US 1.5%-3% (regular, also 5% special) cashback cards keep paying out on transactions here in the EU. I've always wondered who is losing out in that equation.
- mytailorisrich 4y ago
  The EU cap only applies if both payer and payee are local. If you have an US card and uses it in the EU then the cap does not apply.
- triceratops 4y ago
  You probably pay for it with the exchange rate spread. Your card may say no foreign transaction fees but they're already taking a 3% profit margin on the currency conversion.
  - pembrook 4y ago
    This. There's so much funny business that goes on with FX rates that it makes me almost pro-crypto. Even the people who claim to offer raw spot market rates (ie. Interactive Brokers), in fact do not offer that. I would not be surprised in Visa & Mastercard do the same--although they claim otherwise.
    - triceratops 4y ago
      Come to think of it, would Visa/MC be doing the conversion? I believe that's the issuing bank's job. But they offer the rewards, not Visa/MC, so it doesn't change the original answer much.
      - Denatonium 4y ago
        When I took my Schwab debit card to Europe, the exchange rates that I got were identical to the ones posted on Visa's website, suggesting that it's Visa doing the ForEx conversions. A lot of banks do charge a percentage fee on top of Visa/MC's exchange rate, but my bank does not.
traceroute66 4y ago
> nasty regressive tax that transfers vast amounts on wealth from As long as you're not a well off person with an AMEX card that regularly makes purchases outside of your AMEX card currency. AMEX is nuts in that all non-home currency transactions go via USD. So, for example, if you have a EUR AMEX and you make a GBP purchase, your conversion will go GBP -> USD -> EUR with AMEX taking a cut at each step along the way.
- simfree 4y ago
  American Express is a US-centric company, their rest of world market penetratiom and acceptance rates are much lower than in the USA. Your use case isn't large enough to be a priority to American Express.

adrr 4y ago

How do credit cards provide 60 day interest free loan with only 0.3% charge to the merchants? I can see low interchange rates for debit cards like the US the interchange for debit card for major banks is capped at 0.05%.

dagw 4y ago
There is often a small annual fee connected with having a credit card (I think I pay on the order of $25 a year). Also effective interest rates are in the 15-25% range for most cards if you don't pay it off in full, which I'm sure quickly adds up.
- hocuspocus 4y ago
  Zero-fee credit cards exist: https://www.advanzia.com/en-gb/customers https://www.advanzia.com/en-gb/customers
hocuspocus 4y ago
0.3% over 60 days (in practice more like 15 to 45, only commercial cards have longer billing cycles) was really not that bad during a decade of near zero interest rates. And now that banks will finally make a bit more money on mortgages and other kinds of loans, I assume they don't mind the increasing cost of their customers' credit balance.
sofixa 4y ago
> How do credit cards provide 60 day interest free loan with only 0.3% charge to the merchants They don't. They're rare, only do 30 days, and are often paid (you pay monthly/yearly for the pleasure).
- adrr 4y ago
  30 day billing cycle with 30 days to pay. Between 30 days and 60 days before payment.
  - sofixa 4y ago
    Not how they work in EU countries i know of (France and Bulgaria). You have a 30 days billing period, and then around a week to pay.
axelthegerman 4y ago
By charging exorbitant interest for folks who don't pay off their balance in full. Which kind of reminds me of SaaS products that offer a free tier to sell you on the premium subscriptions
- hocuspocus 4y ago
  I really doubt that many credit card holders are actually using the revolving credit in Europe. For starters in most European countries, you are probably not going to qualify unless you're rich enough to pay your bills in full every month.
  - tialaramex 4y ago
    You can doubt it if you want, but the Credit Reference Agencies make a big fraction of their money because this is in fact possible. Say I'm Big Bank, and I want to launch a card I'm calling "Bonus Credit". I want to target customers who mostly will pay me, eventually, but aren't so flush that they can pay their full balance every month (e.g. they buy their summer break in January, pay it off over the next 3-4 months). I call Jumbo National Credit and I offer them £25 per sign-up if they give me customers who have no super-negative credit events in the past say, 12 months but are say 75-95% on recent payment history. Jumbo present this as a "Pre-qualified" instant Credit Card option for customers who match the profile, on their free web site. Click now, you are guaranteed to be accepted. Customers don't even realise they're reading an advert. You may have noticed that although 30 years ago "Credit score" was something you needed to go out of your way to discover, today you can get your score on a web site - sign up today to see it instantly. Why are these companies telling you something that was once an important trade secret ? Because these sites are now effectively marketing for 3rd party credit products. AIUI Experian invented this, I worked with people who were in a small rogue group at Experian which proposed instead of fighting the government to keep it secret they should turn access into a revenue source, they were laughed at internally more or less up until the record profits rolled in and then suddenly it was champagne and bonuses.
  - rootusrootus 4y ago
    > I really doubt that many credit card holders are actually using the revolving credit in Europe. Guessing you are in Germany and extrapolating? It varies quite a bit by country. https://www.spendesk.com/blog/credit-card-statistics/ https://www.spendesk.com/blog/credit-card-statistics/
ar0 4y ago
There are lots of other ways credit card companies can make money: - Higher interchange fees when you purchase something outside of the EEA - Currency conversion when you buy something not in EUR - High interest payments when you do not pay off your balance in full on time On average, it will also not be a 60 day interest free loan: the "average" transaction will happen in the middle of the billing cycle, so that gives you 15 days until the invoice is sent, and many people I know pay their invoices much earlier than after the 30 days payment term.

khuey 4y ago

Debit card fees in the US have been capped at $0.22 + 0.05% for more than a decade.

dagw 4y ago
Which is still over 1% for purchase under $20
- mardifoufs 4y ago
  But still less than the EU's 0.2% cap for any serious purchase. (Over ~120$, so I'm sure it evens out)
- woobar 4y ago
  Why do merchants in Germany have minimum transaction amounts for card purchases then?
MarkSweep 4y ago
Only for large banks. Search “ durbin exempt interchange”.
- khuey 4y ago
  Last I looked at the numbers most transactions were covered by the Durbin Amendment. Interchange fees for exempt single message (PIN) transactions had also fallen to basically the cap. It was really only exempt double message (signature) transactions that were still expensive.

kmlx 4y ago

> you don’t see high value reward cards or cashback program in the EU. this seems like a false statement. here is an article from 2021 that highlights some of the numerous cashback offers: https://medium.com/@danminea/best-cashback-cards-with-rewards-available-in-europe-2021-e30f7fa49b3c https://medium.com/@danminea/best-cashback-cards-with-reward... and Amex usually has cashback cards as well. disclaimer: i have used some of these cashback cards both in the EU and outside of it.

TheCoelacanth 4y ago
Key part of the phrase "high value". Some US cards give back ~2% on all purchases. The best of those appears to be 1% on purchases at six specific retailers or 0.1% on purchases in the EU/1% outside of the EU. Many of them don't even give cash back, they give their own cryptocurrency that they made up out of thin air.
hocuspocus 4y ago
> and Amex usually has cashback cards as well. The cap applies on 4-party schemes, not Amex (nor Diners, Discovery).
triceratops 4y ago
These are not high value rewards cards. You should see what the US has.
avianlyric 4y ago
From the very article you link too, about three paragraphs in: > Why then are there so few and apart offers for cashback cards that can be used in Europe? > > One explanation I’ve seen is this: they’re not so common in the EU because our debit/credit card fees are regulated and very low.
- conductr 4y ago
  This is the answer. In the US the business essentially funds the rewards these cards provide because they can charge whatever interchange fee that card has decided.

mensetmanusman 4y ago

I feel bad about our high CC rewards in the US for exactly this reason. Usury was a sin in all religions for millennia, but not in the US.

rgbrenner 4y ago

"because high interchange + cashback creates a nasty regressive tax" There's an interchange surcharge for rewards cards. Stripe bundles this all together to make the pricing simpler.. but most merchants use traditional merchant accounts, and they are charged based on the type of card used. Edit: For example, here's visa's interchange fees: https://usa.visa.com/content/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees.pdf https://usa.visa.com/content/dam/VCOM/download/merchants/vis...

avianlyric 4y ago
Doesn’t really change anything. VISA and Mastercard rules also prevent merchants from discriminating based on card type, either you except all VISA/Mastercard cards, or you except none. So the exact manner in which they’re billed to merchants is kinda irrelevant, the cost ends up being spread over all consumers, regardless of their ability to recover the money via cashback or rewards.
- deleted 4y ago
  [deleted]
- rgbrenner 4y ago
  Prices aren't set based on costs. Prices are set at the maximum the market will bear. If you've ever set prices for a product, you would see this yourself. Price*Volume=Revenue Consumers dont care if you can pay for the inputs to your product. They obtain a certain value from your product and have a certain expectation of what the price should be, and if your costs are above that, consumers are happy to watch you go out of business. In fact, inability to increase prices over time while inflation increases the cost of inputs, is one of the ways the economy pushes marginal business out of the market.
  - avianlyric 4y ago
    > If you've ever set prices for a product, you would see this yourself. Price*Volume=Revenue If your market is completely elastic, then sure. But only hypothetical markets (and perhaps some fungible goods) are completely elastic. Most markets don’t have a perfect linear correlation between price and demand. The other things you’ve completely ignored, is the fact that interchange impacts all sellers equally. So as a consumer you can’t avoid the interchange tax by shopping around, which in turn will increase a consumer’s willingness to pay higher prices. This may come as a surprise to you, but consumers don’t have a perfect way to calculating the value of something. Ironically, the perceived value of a product is highly influenced by both its price, and the price of its competitors (with Veblen goods being the extreme). So if you introduce a flat 2% price increase across all sellers, then it’s reasonable to expect consumers value perception to increase by a similar amount.

dkjaudyeqooe 4y ago

> This is big part of the reason you don’t see high value reward cards or cashback program in the EU. Interestingly my US 1.5%-3% (regular, also 5% special) cashback cards keep paying out on transactions here in the EU. I've always wondered who is losing out in that equation.

mytailorisrich 4y ago
The EU cap only applies if both payer and payee are local. If you have an US card and uses it in the EU then the cap does not apply.
triceratops 4y ago
You probably pay for it with the exchange rate spread. Your card may say no foreign transaction fees but they're already taking a 3% profit margin on the currency conversion.
- pembrook 4y ago
  This. There's so much funny business that goes on with FX rates that it makes me almost pro-crypto. Even the people who claim to offer raw spot market rates (ie. Interactive Brokers), in fact do not offer that. I would not be surprised in Visa & Mastercard do the same--although they claim otherwise.
  - triceratops 4y ago
    Come to think of it, would Visa/MC be doing the conversion? I believe that's the issuing bank's job. But they offer the rewards, not Visa/MC, so it doesn't change the original answer much.
    - Denatonium 4y ago
      When I took my Schwab debit card to Europe, the exchange rates that I got were identical to the ones posted on Visa's website, suggesting that it's Visa doing the ForEx conversions. A lot of banks do charge a percentage fee on top of Visa/MC's exchange rate, but my bank does not.

traceroute66 4y ago

> nasty regressive tax that transfers vast amounts on wealth from As long as you're not a well off person with an AMEX card that regularly makes purchases outside of your AMEX card currency. AMEX is nuts in that all non-home currency transactions go via USD. So, for example, if you have a EUR AMEX and you make a GBP purchase, your conversion will go GBP -> USD -> EUR with AMEX taking a cut at each step along the way.

simfree 4y ago
American Express is a US-centric company, their rest of world market penetratiom and acceptance rates are much lower than in the USA. Your use case isn't large enough to be a priority to American Express.