Payment card transaction charges are a part of life for most businesses, accepted as another cost of selling goods and services.
These transaction charges, known in the sector as ‘interchange fees’, are paid whenever customers purchase by credit or debit cards and are paid to the card-issuing banks to cover costs and risks such as handling, fraud and bad debt.
The EU’s controversial 2015 Interchange Fee Regulation (IFR) capped interchange fees and aimed to open up Europe’s card payments sector to competition and innovation.
And with a European Commission review of the IFR just around the corner, one of the key questions doing the rounds is whether the regulation has delivered on its objectives of lowering debit and credit card payment costs, increasing competition and transparency and paving the way for the introduction of new, innovative payment technologies.
These were just some of the issues up for discussion at a unique panel debate organised as part of the European Payment Institutions Federation’s (EPIF) annual conference last month.
Moderating the panel debate, Loreta Liutkute, EPIF Vice Chair and Director of Public Policy and Regulatory affairs at Western Union, explained that the upcoming Commission IFR review would be based on an independent study by EY and will consider whether the provisions of the regulation had been delivered.
“IFR is controversial, it is disruptive and while it aims to reduce card payments costs, it also addresses wider issues such as processing, commercial cards and transparency requirements.”
"Football fans will know of the Bosman case, which fundamentally changed the rules for transfers in Europe’s football market. I think the IFR has done the same for the payment card market" Elie Beyrouthy, EPIF Chair and Vice President of European Government Affairs at American Express
Liutkute posed several questions to the panellists, including, whether the payments market had evolved since IFR’s introduction, whether the regulation had led to market changes and whether fee capping had been effective.
First up was René Plank, Deputy Head of Unit of Antitrust Payment Systems within the European Commission’s Competition Directorate General, who said the Commission had analysed whether, since entering into force, there was sufficient data available on the IFR, and came to the conclusion that there was not.
The IFR review report was pushed back and EY were commissioned to deliver a new study. “EY were tasked with looking specifically into quantitative data. So they have been carrying out a rather extensive questionnaire and information-gathering exercise.”
Plank suggested that the scope of the review would be broad, covering the main objectives of the regulation, such as the capping of interchange fees, to “a host of other things” either directly regulated or just outside the scope of the regulation.
John Mowat, Regulatory Policy and Strategy Team Manager at the UK’s Payment Systems Regulator (PSR), said they were currently taking a “deep look” at the card-acquiring market in Britain.
“What we’re hearing from stakeholders since the regulation’s introduction is that there have been substantial savings, with one estimate of about €6bn across Europe and €500m in the UK.”
According to Mowat, there is strong evidence to suggest that reducing the cost of card payments - a key IFR objective - has happened. However, there was also evidence that, “there may not have been an equal distribution of the benefits.”
PSR had noted a “big change” in the number of new payment services products. “It’s probably too early to say what impact these new products are going to have.”
Comparing the IFR’s impact to that of the famous Bosman free movement ruling, EPIF Chair and Vice President of European Government Affairs at American Express, Elie Beyrouthy said, “Football fans will know of the Bosman case, which fundamentally changed the rules for transfers in Europe’s football market. I think the IFR has done the same for the payment card market.”
He echoed many of Mowat’s sentiments and said he was looking forward to reviewing the results of the EY study. He suggested that the benefits to merchants were uneven and that the IFR had not encouraged the emergence of new players in the market.
“EY were tasked with looking specifically into quantitative data. So they have been carrying out a rather extensive questionnaire and information-gathering exercise” René Plank, Deputy Head of Unit of Antitrust Payment Systems, European Commission’s DG Competition
He also said there was little evidence to show that any cost savings that merchants may have gained had been passed on to consumers.
Andrew Cregan, Head of Payments for the British Retail Consortium and attending the event on behalf of EuroCommerce, said that from the retail perspective the IFR had only been a partial success.
“It’s obviously reaped huge rewards as we heard from John Mowat, but I think for small businesses, there hasn’t been the same level of benefit as there has been for large retailers.”
Cregan argued that an already “extremely complicated” fee-charging process had been given another layer of complexity with the new deal that the Commission had negotiated with VISA and Mastercard for inter-regional fees.
“It’s already one that’s impenetrable for most end users of the card payment systems to be able to understand [and] inhibits real competition in this market.”
Jana Mackintosh, Director of Government Affairs and Public Policy at Worldpay, argued that following the IFR’s introduction, the traditional card payment systems paradigm had changed.
“I think the idea of a very clean four-party payment network model [cardholder, merchant, acquirer and issuer] just doesn’t exist in reality anymore. What we are dealing with is quite a complex value chain of different parties providing services to merchants.”
Mackintosh said she was “completely supportive” of reviewing the IFR through a ‘competition’ lens. “We’ll get a better understanding in terms of what the market now looks like, who the players are, what their new incentives are and what pricing looks like to merchants.”
“I think we’re dealing with quite a lot of change. And making sure that we put more change through in the right way I think is going to be the challenge.”
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