Banks in the European Union will have to cut fees on cross-border 
payments, according to legislative proposals put forward by the European
 Commission on March 28.
European Commission Vice President for 
the Euro Valdis Dombrovskis’ plan is to make banks lower their consumer 
costs in the banking sector. The move is expected to reduce profits 
mostly for banks outside the 19 Eurozone member states, while the sector
 suffers from stiff competition from FinTech firms.
The EU’s 
second Payment Services Directive (PSD2), which came into force at the 
beginning of the year, lowers charges or has no fees for trans-national 
payments in euros within the Eurozone. Charges remain higher, however, 
for cross-border transactions from other EU countries outside the 
Eurozone.
Currency conversion fees will be capped for three years
 to put an end to excessive charges when EU citizens withdraw money or 
use their payment cards abroad or online for payments in or into euros.
“With
 today’s proposal we are granting citizens and businesses in non-euro 
area countries the same conditions as euro area residents when making 
cross-border payments in euro,” Dombrovskis, said on Wednesday.
When
 EU citizens buy abroad and decide to use the option provided and pay in
 their home currency, a local bank or other payment service providers 
will convert the amount of the transaction on the spot in exchange for a
 fee, a system known as a dynamic currency conversion fee.
“While
 dynamic currency conversion allows consumers to know immediately how 
much they have to pay, the use of this service is often more expensive 
than with their bank,” according to the European Commission.
The 
lack of necessary information to make the best choice often results in 
consumers being unfairly led towards the more expensive currency 
conversion option. The European Banking Authority will be tasked with 
drafting the necessary Regulatory Technical Standard to implement the 
new regulations, according to the EU executive
The EU Commission 
proposes a three-year transition period, after which, banks, credit 
cards, and other payment services will have to show currency conversion 
fees to consumers before they pay to allow each customer to determine 
whether it is cheaper to pay the conversion offered by their bank or the
 dynamic conversion service.