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EU MPs have backed a deal to cap the fees that banks charge businesses to process payments by credit and debit cards, saying it will lower costs for shoppers.

The deal overwhelmingly approved by the European Parliament in Strasbourg applies to both cross-border and domestic card payments, it said in a statement.

"This legislation will establish a level playing field for payments across Europe," said centre-right MEP Pablo Zalba, who steered the plan through parliament.

Legislators voted in favour by 621 to 26.

The deal will lead to a reduction of about six billion euros ($A8.43 billion) a year in hidden fees, according to the European Commission, the powerful executive arm of the 28-nation European Union.

When a customer uses a credit or debit card, the merchant's bank has to pay a fee to the buyer's bank for the service, which in turn charges the merchant a fee to cover this cost. That is then added to the price of goods on sale, affecting all customers, including those who do not pay by credit card.

Competition Commissioner Margrethe Vestager said the new rules were "good for consumers, good for business and good for innovation".

"For too long, uncompetitive and hidden bank interchange fees have increased costs of merchants and consumers. Today's vote has brought us another step closer to putting an end to this," she said.

The new cap for cross-border debit card transactions will be 0.2 per cent of transaction value and will take effect within six months of the deal's formal approval by ministers, which is expected this northern summer.

For domestic debit card transactions there is a five-year transition period before the cap takes effect.

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European MPs back credit card fee cap