Bank charges on banking transactions

Mark Saliba writes:

I have some questions relating to bank charges on banking transactions.

Firstly, does EU law require banks not to charge more for a transfer to another EU country than for a transfer to the bank across the road?

Secondly, have cross-border "multilateral interchange fees" (MIF) been abolished and has MIF been reduced gradually by Visa from 1.1 per cent to 0.70 per cent since 2004? Have banks in Malta and Europe reflected the EU decision in their new fees for 2008?

Finally, will the Single European Payments Area (SEPA) help reduce costs of transactions?

The issue of bank charges is becoming increasingly important as more and more people use banking facilities such as credit and debit cards as well as internet banking to effect payments. But as more people become aware of these facilities they are also more likely to become interested in how much they are charged for these services.

These are legitimate questions not just for consumers but also for traders. And they deserve a full and clear answer.

Let me start with what EU law states in relation to bank charges imposed on transfers from one EU country to another using the euro as currency.

EU law makes it clear that charges levied by a bank in respect of cross-border transfers in euro up to €50,000 must be the same as the charges levied by the same bank in respect of a similar transfer made nationally within the same country where the bank is located. In other words, you should not be charged more for a transfer made to, say, Italy, than you are charged for a transfer made within Malta.

This law should give consumers a guarantee that when they make a payment in euro to an account in another member state it will cost them the same as it would to make a payment in euro within their own country.

Consumers need only provide the International Bank Account Number (IBAN) and Bank Identifier Code (BIC) of the person they are transferring the money to. Charges at both ends of the transfer must be the same as corresponding national ones.

Let me now come to the second question regarding multi-lateral interchange fees (MIF), which are fees charged by banks for cross-border transactions that we make with our cards, typically for payments at retail outlets accepting card payment.

Only last month the European Commission adopted a decision in which it stated that, although these fees are not, as such, illegal, they must nevertheless be justified in terms of benefits that they bring to card users. The case related to MasterCard's MIF charges levied on cross-border payments using MasterCard and Maestro as well as on domestic payments in eight EU countries, including Malta.

MasterCard's MIF is set at more than 0.50 per cent for debit card payments and more than one per cent for credit card payments. The Commission found these fees to be in breach of EU competition rules as they "inflated the cost of card acceptance by retailers without leading to proven efficiencies".

The Commission tellingly stated that consumers foot the bill, as they risk paying twice for payment cards: once through annual fees to their bank and a second time through inflated retail prices paid not only by card users but also by customers paying cash.

The Commission therefore concluded that MasterCard's MIF acts like a "tax on consumption" paid not only by card users but also by customers using cash and cheques. As a result, it ordered MasterCard to redraw its fees within six months or risk daily fines as high as 3.5 per cent of its global turnover. On its part, MasterCard announced that it will appeal against the Commission's decision.

Specifically on the case of Visa raised by the reader, it is true that Visa already faced a similar case back in 2002 when the Commission ordered it to reduce its MIF. Incidentally, that decision expired at the end of December and Visa too is now expected to follow EU competition rules in full with effect from this month.

In this vein, the reader asks whether banks in Malta and Europe have reflected the decision in their new fees for 2008.

Of course, it is up to the EU and national competition and banking supervision authorities to determine this; and if there is reason to believe that this is not the case, then the matter can be pursued further in full respect of our commitments under EU law.

But it is clear that these changes can have significant positive implications for us as consumers as well as for local traders, retailers in particular, because of the benefits that are likely to be derived in terms of lower transaction fees and therefore lower prices.

Incidentally, the Commission's decision applies for payments within the EU (EEA) area. So it would only benefit us because we are part of the Union. If you like, this is another benefit of EU membership that could have been denied to us had we stayed out.

Let me finally come to the question on SEPA, which stands for the Single Euro Payments Area, that started operating from this week.

SEPA creates a single euro payments area which hopes to replace the current individual national payment areas operating in each EU country. This new arrangement would effectively transform payments made within the EU into domestic payments. In other words, it will become as easy and secure to make (and receive) payments within the EU in euro as it is to make them within one's own country.

Payments will also be much faster, settled within a maximum of just three working days, down to just one working day by 2012.

The benefits of SEPA are important not just for consumers but also for traders, not least because of reduced operating costs linked to payments. Moreover, they would also be able to carry out all transactions from one single euro account rather than having different accounts in different countries.

SEPA applies to all payments across the board, including those made by individual consumers via the internet and those using their debit and credit cards.

For instance, you would be able to use your debit card in another EU country, something which, to date, had been generally restricted. Equally, direct debit of your account for settlement of regular instalments abroad will also be possible. Direct debit will be available from November next year.

The fact that payments will be made easier is expected to help unlock further business and economic potential within the EU market. Indeed, for the purposes of electronic payments, SEPA is considered as the obvious corollary to the establishment of the economic and monetary union with a single European currency, the euro.

Readers who wish to learn more about this subject should access this website: http://ec.europa.eu/internal_market/payments/crossborder/index_en.htm.

Readers can ask questions to be answered in this column or obtain regular updates on Dr Busuttil's work by sending an email to contact@simonbusuttil.eu or through www.simonbusuttil.eu.