The European Parliament has voted in favour of a new European law to cap the fees banks charge retailers to process debit and credit card transactions.

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Under the law, which is expected to come into force in September this year, fees will be capped at 0.2% of the transaction value for consumer debit cards and at 0.3% for consumer credit cards.

The cap will apply to both cross-border and domestic card-based payments made in the UK and to retailers throughout Europe.

Upon implementation, the new rules are expected to result in a reduction of about EUR6bn annually in hidden fees for consumer cards as well as provide more choices to retailers, improve transparency for card transactions, and pave the way for payment technologies to be rolled out.

The regulation will allow member states to define lower percentage caps and impose maximum fee amounts for consumer debit cards.

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Additionally, the regulation will enhance transparency on fees and removes major obstacles to technological innovation in payment options.

The law will support the card payments industry move to a new more competitive system that benefits consumers, merchants and banks.

EU Competition Commissioner Margrethe Vestager said: "This legislation will put a cap on interchange fees, make them more transparent and remove a hurdle to rolling out innovative payment technologies.

"It is good for consumers, good for business and good for innovation and growth in Europe. As cards are the most widely used means of online payment, this regulation is also an important building block to complete the European Digital Single Market."