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EU Aims to Cut Cost of Euro Cross-Border Payments

By Zack Andresen

A new proposal aims to move the EU one step closer toward its vision of a single market by lowering the cost of cross-border euro payments and increasing the transparency of foreign exchange fees.1

Currently, banks charge nominal fees for euro-denominated cross-border payments within the eurozone. However, euro payments to or from EU countries outside the eurozone may incur fees as high as 24 euros ($30), according to the European Commission. 2,3 The Commission’s recent proposal aims to eliminate that disparity, ensuring low fees for all euro payments throughout the EU.4

 

If adopted, the proposal could reduce costs for 150 million consumers and 6 million businesses outside of the eurozone, saving them an estimated 900 million euros ($1.1 billion) per year in fees, according to the Commission.5

 

The Current State of Cross-Border Euro Payments

 

The March 2018 proposal builds on previous regulation (Regulation 924/2009) that required payment service providers to charge the same fees for cross-border euro payments as for domestic payments. The proposed amendment would extend the benefits of low cross-border euro transaction fees to all nine EU member states outside the eurozone.6,7 As a result, fees that today climb as high as 24 euros ($30) per transaction could be reduced to just a few euros or cents – or even zero, according to the Commission.8,9,10

 

It may be worth noting that the proposal only mandates the regulation of euro cross-border transactions — not payments in domestic currencies. According to the Commission, extending the current proposal to domestic currencies could be “cumbersome” and benefit only a small subset of EU citizens.11 A January 2018 study conducted by the Commission found that the processing of non-euro currencies by EU banks remains costly due to inadequate multi-currency clearing and settlement systems. With less than 18 percent of cross-border payments involving non-euro currencies, banks are hesitant to make major investments in improving their infrastructure.12,13

 

Regulation 924/2009 did give countries outside the eurozone the option to require equal fees for domestic and cross-border payments in their national currency. However only Romania and Sweden have opted to do so to date.14,15 Sweden adopted the provision in 2002, thereby aligning cross-border payments in Swedish krona with the costs of domestic payments in krona.16 Banks subsequently lowered the costs of cross-border payments to and from Sweden in euro as well.17

 

Increased FX Fee Transparency

 

In addition to regulating cross-border payment fees, the proposed amendment addresses a primary concern highlighted by businesses and consumers: a lack of fee transparency in foreign currency exchange transactions.18 Today, when a consumer or business from a non-eurozone country conducts a transaction online or abroad, they may be presented with the option to pay in the local currency or their home currency.19 Those who elect to pay with their home currency often don’t realize until later that there is a considerable fee — an average of 6 percent according to BBC News — associated with the service. 20

 

The Commission’s proposal requires full disclosure of all fees at the point of sale. And when applicable, consumers will be able to compare competitive currency conversion offers and choose their lowest-priced option. Since such an overhaul will take time for payment providers to implement, the Commission proposed a three-year transition period during which the European Banking Authority (EBA) will impose a temporary cap on currency conversion fees.21

 

As with the recent provisional agreement to increase transparency among EU delivery service providers ,the Commission anticipates that the level of transparency proposed in the amendment would increase competition among cross-border payment services, ultimately resulting in lower costs for consumers and businesses.22 The Commission also concluded that payment providers would see higher transaction volumes, helping them recoup the revenue lost due to lower fees.23

 

Potential Benefits of Cheaper Cross-Border Payments

 

At the heart of the proposal is the intent to provide European consumers with greater choice and better access to financial services across the EU.24 By tackling transparency and fees in cross-border transactions, the proposal supports the Commission’s larger vision of a single market that eliminates any regulatory obstacles inhibiting the flow of goods and services across the EU.25

 

For users of payment services, the Commission’s impact assessment forecasts savings upwards of 900 million euros (roughly $1.1 billion) by reducing cross-border payment costs. SMEs in particular may benefit from the elimination of high transaction fees that have presented a significant barrier to conducting business with non-euro member states, according to the Commission. Furthermore, SMEs may see heightened demand for products and services from non-eurozone member states due to the reduction in fees.26

 

Next Steps for EU Cross-Border Payments

 

The proposal still has to be approved by the European Parliament and Council. If approved, there will be a three-year transitional period before it is enforced.27 As part of the proposal, the Commission also promised a report by October 31, 2022, on a possible additional amendment extending the regulation to all member-state currencies.28

 

The

Takeaway:

A new proposal from the European Commission aims to move the EU one step closer to its vision of a single market by lowering the costs of all cross-border payments in euros and increasing FX fee transparency. The Commission expects that if the amendment is approved, it will reduce costs for businesses and consumers throughout the EU.

Zack Andersen - The Author

The Author

Zack Andresen

Zack Andresen is a business technology writer based in Brooklyn, NY, but currently traveling the world with his wife and son. Learn more at ZackWrites.com.

Sources

1.“A better deal for consumers: Cheap euro transfers everywhere in the Union and fairer currency conversions,” European Commission;http://europa.eu/rapid/press-release_IP-18-2423_en.htm
2. Cheaper Euro Transfers and Fairer Currency Conversions, European Commission; https://ec.europa.eu/info/sites/info/files/180328-cheaper-euro-transfers-factsheet_en.pdf
3. “A better deal for consumers: Cheap euro transfers everywhere in the Union and fairer currency conversions,” European Commission;http://europa.eu/rapid/press-release_IP-18-2423_en.htm
4. Ibid.
5. Cheaper Euro Transfers and Fairer Currency Conversions, European Commission; https://ec.europa.eu/info/sites/info/files/180328-cheaper-euro-transfers-factsheet_en.pdf
6. “The euro,” European Union;https://europa.eu/european-union/about-eu/money/euro_en
7. “A better deal for consumers: Cheap euro transfers everywhere in the Union and fairer currency conversions,” European Commission;http://europa.eu/rapid/press-release_IP-18-2423_en.htm
8. Cheaper Euro Transfers and Fairer Currency Conversions, European Commission; https://ec.europa.eu/info/sites/info/files/180328-cheaper-euro-transfers-factsheet_en.pdf
9. “A better deal for consumers: Cheap euro transfers everywhere in the Union and fairer currency conversions,” European Commission;http://europa.eu/rapid/press-release_IP-18-2423_en.htm
10. Cheaper Euro Transfers and Fairer Currency Conversions, European Commission; https://ec.europa.eu/info/sites/info/files/180328-cheaper-euro-transfers-factsheet_en.pdf
11. Ibid.
12. Study on the extension of Regulation 924/2009 to currencies of Member States outside the euro area, European Commission; https://ec.europa.eu/info/sites/info/files/180328-study-cross-border-transaction-fees-extension_en.pdf
13. “Impact Assessment,” European Commission; https://ec.europa.eu/info/law/better-regulation/initiative/215202/attachment/090166e5b9971075_en
14. “Single euro payments area (SEPA),” European Commission; https://ec.europa.eu/info/business-economy-euro/banking-and-finance/servizi-finanziari-ai-consumatori-e-pagamenti/payment-services/single-euro-payments-area-sepa_en#rules-on-charges-for-cross-border-payments-in-euro
15. “Frequently asked questions: Cross-border payments,” European Commission; http://europa.eu/rapid/press-release_MEMO-18-2424_en.htm
16. “Communication from the Commission pursuant to Article 9 of Regulation (EC) No 2560/2001 of the European Parliament and of the Council,” European Commission; http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52002XC0711(03)
17. “Frequently asked questions: Cross-border payments,” European Commission; http://europa.eu/rapid/press-release_MEMO-18-2424_en.htm
18. Public consultation on the transparency and level of fees in cross-border transactions in the EU, European Commission; https://ec.europa.eu/info/sites/info/files/2017-cross-border-transactions-fees-summary-of-responses_en.pdf
19. “Frequently asked questions: Cross-border payments,” European Commission; http://europa.eu/rapid/press-release_MEMO-18-2424_en.htm
20. “Tourists warned over exchange rate costs,” BBC News; http://www.bbc.com/news/business-40702496
21. “Frequently asked questions: Cross-border payments,” European Commission; http://europa.eu/rapid/press-release_MEMO-18-2424_en.htm
22. Ibid.
23. “Executive Summary of the Impact Assessment,” European Commission; https://ec.europa.eu/info/law/better-regulation/initiative/215202/attachment/090166e5b997166b_en
24. “Consumer Financial Services Action Plan: Better products and more choice for European consumers,” European Commission; http://europa.eu/rapid/press-release_IP-17-609_en.htm
25. “The European Single Market,” European Commission;https://ec.europa.eu/growth/single-market_en
26. “Executive Summary of the Impact Assessment,” European Commission; https://ec.europa.eu/info/law/better-regulation/initiative/215202/attachment/090166e5b997166b_en
27. “A better deal for consumers: Cheap euro transfers everywhere in the Union and fairer currency conversions,” European Commission;http://europa.eu/rapid/press-release_IP-18-2423_en.htm
28. Proposal for a Regulation of the European Parliament and of the Council, European Commission; https://ec.europa.eu/info/law/better-regulation/initiatives/com-2018-163_en

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