Under current rules, interchange fees for card-based payments, paid by the retailer's bank to the bank that issued the card, are not transparent and differ among EU countries, where in some cases they are subject to legislation and in others to decisions by national competition authorities. Retailers are often obliged to accept all cards at conditions set by the card issuers.

The new rules set a fee cap of 0.2% of transaction value for cross-border debit card transactions. For domestic debit card transactions, the same 0.2% cap will apply after a five-year transition period in which EU member states may cap fees at 0.2% of the ‘annual weighted average transaction value of all domestic transactions within the card scheme’.

For smaller domestic debit card transactions, member states may also set a maximum fixed fee of €0.05 (£0.04) per transaction, after the five-year transition period. Credit card transaction fees will be capped at 0.3% of transaction value and member states may set a lower fee cap for domestic credit card transactions.

Pablo Zalba, the MEP who steered the proposal through the European Parliament, said: ‘This legislation, combined with the upcoming Payment Services Directive, will establish a level playing field for payments across Europe. It should enhance fee transparency, stimulate competition and enable both retailers and users to choose the card schemes that offer them the best terms.’

The new rules cover so-called ‘four-party schemes’, involving an issuing bank, a retailer’s bank, the retailer and the card user) which together control the lion’s share of the market. They will not apply to ‘three-party’ card schemes such as Diners and American Express (involving only one bank) provided the card is both issued and processed within the same scheme. Commercial cards used only to pay business expenses will also be exempt.

After three years, the rules will also apply to three-party card schemes that licence other parties to issue cards and thus circumvent the law by effectively operating as four-party ones. The capping rules do not affect ATM cash withdrawals.

KPMG said its analysis of the new payment regulations suggest they will slash credit and debit card charges for retailers, resulting in a boom for the sector.

David McCorquodale, head of retail at KPMG, said: ‘The amount retailers pay out in merchant fees, where interchange fees are a key component of this cost, has risen exponentially over the last decade as shoppers have shifted from cash to card. Capping interchange fees will help to alleviate a significant financial burden, which has been weighing heavily on retailers’ shoulders.’

‘It remains to be seen whether or not merchants choose to pass these savings on to consumers or take this opportunity to reinvest the cash back into the business. My view is retailers will initially wait to see if they are hit with increased bank charges first before passing any savings on to the consumer.  If bank charges do not increase, the saving will filter through to reduced prices on goods.’