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.