Payment Systems

Interchange Fee Regulation (IFR)

Regulation (EU) No 2015/751 of the European Parliament and of the Council of 29 April 2015 on 'interchange fees for card-based payment transactions' (IFR) entered into force on 8 June 2015. Provisions outlined in the Regulation take effect on different dates. The application of interchange fee caps, as outlined in Article 3 and Article 4, entered into effect on 9 December 2015, amongst other requirements. Additionally, the majority of provisions related to business rules enter into force on 9 June 2016.

The aim of the IFR is to support the objective of achieving a more effective card payments market throughout Europe which contributes towards increasing competition and innovation. This would benefit all stakeholders, particularly consumers. The Regulation further intends to reduce costs for merchants and consumers, promote a level playing field and subsequently hopes to increase card acceptance and usage.

A main objective of the IFR is to impose caps on interchange fees which are typically set by the card schemes and which merchants have little to no negotiating power over. Such fees are received by the card issuer (the payment service provider of the cardholder) from the merchant's acquirer (the payment service provider of the merchant) and constitute a fee for each transaction carried out by the cardholder. In turn, interchange fees form part of the package of fees (the merchant service charge) which the merchant's acquirer charges the merchant for each transaction processed.

The aim of capping interchange fees is to redistribute revenues of the issuing bank towards merchants by making card acceptance cheaper. Lower card charges should promote higher card acceptance and result in cheaper prices for customers. The Regulation stipulates that the interchange fee imposed on debit card transactions cannot exceed 0.2% of the value of the transaction while the interchange fee imposed on credit card transactions cannot exceed 0.3% of the value of the transaction. These caps were determined through a 'Merchant Indifference Test' which established a rate at which a merchant is indifferent between accepting a card or a cash payment.

Moreover, the IFR gives some discretion to Member States in the application of caps for domestic card transactions done by debit or credit cards. In this regard, the Minister for Finance has decided by virtue of Legal Notice 263 of 2016 to cap the interchange fees for domestic card-based payment transactions, as follows:

  • Credit card payments capped at 0.30%
  • Debit card payments capped at 0.15%

The Central Bank of Malta has been appointed as the Competent Authority for the IFR by virtue of Legal Notice 326 of 2015, which has been further amended by Legal Notice 220 of 2016, which adds a new regulation related to the imposition of sanctions.

A more detailed explanation of the Interchange Fee Regulation can be accessed here.