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.
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.
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