Brazil’s central bank on Monday said it would set a 0.7% limit for interchange fees for prepaid cards, which are offered by fintechs in free digital accounts, in a setback for the booming sector in Latin America’s largest economy according to Reuters.

The central bank had put the issue out for public consultation last year, but its proposal suggested a maximum rate of 0.5% for both debit and prepaid cards, which would be even more damaging to fintechs.Banks’ debit card interchange fees, which currently have to comply with a joint weighted average calculation of 0.5% and maximum value per transaction of 0.8%, will now be capped only by 0.5% per transaction.

An interchange fee is a charge a merchant pays to the card-issuing bank every time a consumer swipes their card.The changes will take effect from April 2023, and will also standardize the settlement term for debit and prepaid card transactions.According to the central bank, the changes will “increase the efficiency of the payments ecosystem, encourage the use of cheaper payment instruments, enabling the reduction of costs for stores to accept these cards.”

Banks had pressed the regulator to set a limit for interchange fees for prepaid cards on the basis that there should be greater equality in treatment, especially after the dizzying rise of fintechs and their digital accounts.There is currently no limit on the rate for prepaid cards, which is usually higher than that charged in transactions with debit cards, representing an important source of revenue for fintechs.

A study released this year by the Zetta association, which represents companies such as Nubank and Mercado Pago, estimated that if a 0.6% cap were in effect in 2021, fintech customers would have paid an additional 24 billion reais ($4.51 billion) in service charges.Nubank said in a statement that interchange fees on prepaid cards accounted for 7% of its revenue in the year to June 30. If the changes had been in effect, its revenue would have been affected by 2.9%, it said.In a note to clients, Citi estimated that the new regulation should be negative for Brazilian payments company PagSeguro Digital, whose shares were down 9.5% in midday trade. Nubank’s shares dropped 2.3%, while those of Inter & Co plunged 9.8%.

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