Credit Card Armageddon in Germany – Interchange fees capped starting December 1st 2015

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Germany is implementing a new EU legislation that caps interchange fees at 0.3% for all credit card usage (down from the ~2%) for all personal spend. If that reminds yo of the CARD Act in the US you are spot on.

However we are not talking about debit cards – it is credit cards that are capped at 0.3%! Even more confusing the same credit card still receives a ~2% fee if the purchase is for commercial purposes.

Even more confusingly the merchant does not know what the purchase is for – there cards do not have to be branded as a business card. The person making the transaction decides if he/she wants to make this transaction as a business or for personal use – the merchant does not know (unless he/she is a mind reader).

Most credit cards issuers in Germany have moved boldy and cut sign up bonuses, slashed mileage earning and or increased the annual fee. Additionally foreign exchange fees are being (re-)introduced though the FX fees are usually lower in Europe (likely also capped by another law) at about 2%.

The British Airways Barclaycard has even announced to stop issuing any miles.

Business credit cards will NOT change but they need to be serviced from a business checking account (to prove it is all business usage).

Credit cards were never a major business for many banks in Germany. Cash usage is widespread and debit cards (running on Maestro instead of Visa/ MasterCard) were always the preferred way to pay by both merchants and consumers. However it is sad to wave this emerging business completely good bye now.

However given those low fees for merchants it might be interesting to see what happens if more merchants will accept credit cards. If so I wonder what happens to non-EU credit card usage?

Will we be able to buy ‘German Money orders’ with our US issued credit cards because most merchants only pay 0.3% in fees? If that is true Germany could become a haven for Manufactured Spend for Americans 🙂