BRUSSELS (Reuters) - Banks in the European Union will have to cut fees on cross-border payments in euros and on some currency conversions within the bloc under legislative proposals put forward by the European Commission on Wednesday.
The measures, if agreed by EU states and lawmakers, are expected to lower consumers’ costs but will reduce profits mostly for banks outside the 19 countries of the euro zone in a sector where they already face stiff competition from financial technology (fintech) firms.
EU rules already ensure low or no fees for trans-national payments in euros within the currency bloc, but charges are much higher for cross-border transactions from other EU countries outside the euro zone.
For instance, a euro payment from Britain to Belgium can incur a transaction cost of more than 11 euros ($13.63), not including an additional currency conversion fee, while the same transfer between Belgium and France is free of charge.
With the new rules in place and while it remains an EU member or during a transition period, Britain will also have to make its banks cut the cross-border transaction fees to the same level applied for domestic payments, which are usually free.
“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,” said Valdis Dombrovskis, vice-president of the European Commission.
The new rules would apply only to payments in or into euros, while cross-border transactions in pounds or Polish zloty will remain unregulated, the Commission said, reversing an earlier plan to lower tariffs also on non-euro transfers.
EU payments to countries outside the bloc will also be excluded from the overhaul, leaving untouched the often high fees paid on remittances by migrants.
Watchdog Finance Watch said this was a “missed opportunity” to put a cap on “extremely high” money transfer fees that on average amount to 7 percent of payments, costing migrants in Europe 3.6 billion euros ($4.46 billion) a year.
A cap on currency conversion fees will also be introduced for three years to put an end to excessive charges sometimes levied on shoppers when they withdraw money or use their payment cards abroad or online.
The Commission wants in particular to crack down on so-called “dynamic currency conversion” which is usually offered to consumers when abroad.
When shoppers decide to pay in their home currency, instead of the local currency, a local bank or other payment service providers will convert the amount of the transaction on the spot in exchange for a 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 their bank’s (service),” the Commission said in a document.
One EU official said the practice sometimes involved elements of a “scam,” in line with comments from consumers organization BEUC which praised the Commission’s proposal.
Caps will be set by the European Banking Authority, the bloc’s banking regulator.
After a three-year transition, banks, credit cards and other payment services will have to show currency conversion fees to consumers before they pay so that they can see whether it is cheaper to pay the conversion offered by their bank or by the dynamic conversion service.
($1 = 0.8068 euros)
Reporting by Francesco Guarascio; editing by Philip Blenkinsop