It is incredible to see how European lawmakers have coherently proposed a law that caps fees shoppers and retailers pay to process credit and debit card transactions. For credit cards payments made across Europe, this cap will be 0.3 percent of the transaction value, while for debit cards, it will be 0.2 percent.
The decision is expected to benefit British retailers by a whopping £480 million a year; and therefore would indirectly save customers from paying any extra secretive charge for the goods and services they purchase. Moreover, the new rules will also allow retailers to choose the cards to accept which, in this case, would preferably be VISA and MasterCard, as one-bank modeled cards like American Express and Diner have been exempted from the law.
The original draft of the aforementioned law was first proposed in 2013, a year after MasterCard was found to be overcharging clients, by eventually looting-out a multibillion revenue each year from a so called cross border transaction fee.
MasterCard however repelled such allegations and was further backed by some of the leading European banks like Royal Bank of Scotland, Banco Santander and HSBC, in taking the message forward. The company’s President Javier Perez feared that reducing transaction fee will never be going to benefit consumers directly, as merchants will simply avoid passing the cost reductions.
“They are still paying high fees because they don’t have the same kind of revenue,” further criticized Steven Woolfe, financial affairs spokesman for the anti-EU UK Independence Party (UKIP). “In America and Spain where this has been tried before, the retailers have made a huge amount of money but the customers have made no savings at all.”
Visa, in its latest statement, also raised similar issues. It though welcomed the decision to cap the transaction’s fee.
Rise of The Bitcoin, Meanwhile
The digital currency Bitcoin was itself launched as a peer-to-peer payment systems that cuts unnecessary middlemen from the transactions, thus saving a lot of money for both senders and receivers. It indeed presented itself as an alternative to a tyrannically monopolized payment system.
Despite being on the same page with the European lawmakers, Bitcoin’s decentralization however worried its counterparts which eventually kept it away from being wholly adopted. What further added oil on the fire is Bitcoin’s price volatility and constant association with criminal activities, related to terrorism, drug trafficking and online thefts that kept the governments unsure of adopting it in the first place.
However, as people became more apprehensive about the underlying assets of Bitcoin technology — the blockchain, for instance — its utilization gave birth to a series of subordinated payment features, the best example being the payment protocol Ripple that offers easy and cheap cross border wire services.
Bitcoin’s volatility was later solved by the introduction of payment processors like BitPay and Coinbase. Using these checkout currency conversion services, a retailer can receive payments directly in fiat even if the consumer pay in Bitcoin. This remarkable method led Bitcoin to the payment options of some of the world’s leading companies like Microsoft and Dell, though with a middlemen.
The Sluggish Bitcoin Adoption in Europe
A recent report from European Central Bank however noted that only 2% of Europeans use E-Money and other payment instruments like Bitcoin, while a whopping 43.5% still relies on card payments.
There is indeed a lack of clarity about Bitcoin’s legality within EU that has led to a little adoption rate. Stakeholders think that there would always be some substantial risk associated with the currency, that further adds up the aforesaid uncertainty. In its statement in 2012, the EU has called Bitcoin a legal entity under the Electronic Money Directive 2009/10/EC law. A year later though, the EU’s regulatory agency European Banking Authority (EBA) published a brief warning against the use of virtual currencies, and mentioned it as an “unregulated” assets.
Sweden-based legal council raised this conflicting theory in one of his blogposts, saying that EU must “ensure the maximum possible balance between the interests of Bitcoin stakeholders longing for the preservation of Bitcoin’s benefits and mitigation of relevant risks, and the interests of regulators striving for ensuring the compliance of Bitcoin stakeholders with the law.”
In the end, the lack of clarity slowed down Bitcoin’s adoption throughout Europe.
The Crossroads
The 0.2-0.3% decrease in Visa and MasterCard transactions have indeed posed a serious competition for a new venture like Bitcoin. The digital currency currently charges a minimal 0.0001 BTC (equivalent to $0.03 USD at press time) for confirming a transaction, which is still way too below what the centralized payment companies charge. But with EU deciding to regulate transaction fees, the quotient of trust will be more towards the traditional payment methods.
There are however risks involved in capping transaction fee as well, as it will directly wipe out profitability from the debit space. This will persuade European banks to offer a lesser-quality service, causing more people to drop out eventually. This further means that any person wishing to receive rebates, or any other attractive feature with a new credit/debit card, won’t be entertained enthusiastically.
This will indeed be a great opportunity for Bitcoin-based startups like Ripple Labs to jump on the bandwagon and encourage banks and users to rely on alternative payment methods. The involvement of mainstream businesses, like the ones taking place in the US, would further encourage the lawmakers to rule out simplified regulations for Bitcoin businesses.
The Bitcoin society is meanwhile required to design risk assessments policies in case they want to earn trust of the regulators, vendors and consumers.. Their integration into this highly competitive payment industry will indeed be easier, if provided with a planned, practical approach.
This is just one-among-many ways to see Bitcoin’s future. Feel free to provide your criticism and ideas to expand this opinion.