Image caption Banks say the changes could mean more expensive credit cards

Plans to cut transaction fees on debit and credit cards in the European Union have been published - but there is disagreement over the potential impact.

The European Commission estimates that the EU payment market is worth 130bn euros (£112bn) but is "fragmented and expensive".

It wants to cap "interchange fees" to a maximum of 0.3% of a transaction.

The fees involved are paid by shops and businesses to banks, every time a consumer uses his or her card.

Retailers say customers could ultimately benefit from lower prices in the shops as a result of the proposals, which could take years to implement.

But banks argue that consumers will instead end up paying higher charges to use debit and credit cards.

Cap on fees

Shops and businesses pay different interchange rates to the banks, depending on the size of the retailer, and whether the customer has used a debit card or a credit card.

On average, debit card transactions cost the retailer 9p each, or about 0.2% of the bill.

Credit card transactions typically cost much more, at around 0.9%.

[This will] finally put an end to the unjustified high level of these fees Joaquín Almunia, Vice President, European Commission

Under the plans, debit card interchange fees would be capped at 0.2%, and credit card fees at 0.3%.

In other words, many debit card fees would not be affected by the changes, but charges for credit cards would, on average, be reduced by two-thirds.

In the first instance, these caps would only be applied to cross-border transactions, such as a UK resident making a purchase elsewhere in the EU.

But the caps could later be applied within each of the member states.

"The proposed changes to interchange fees will remove an important barrier between national payment markets and finally put an end to the unjustified high level of these fees," said EU Internal Market Commissioner Michel Barnier.

European Commission competition chief Joaquin Almunia said: "The interchange fees paid by retailers end up on consumers' bills. Not only are consumers generally unaware of this, they are even encouraged through reward systems to use the cards that provide their banks with the highest revenues."

Warning

The British Retail Consortium, which represents shopkeepers in the UK, has welcomed the plan, arguing that if retailers pay lower fees, they can pass those savings on to customers.

But the banks argue that the present fees accurately reflect the costs of processing the transactions involved.

If the plans are approved, they warn that consumers will end up paying more for the cards themselves.

For debit cards, they say consumers might have to pay an extra £11 a year. Credit cards, they say, could cost an extra £25 a year.

The proposals are part of a series of measures aimed at tightening up the payments market across the EU.