25 Jun Antitrust: Commission welcomes entry into force of new rules to boost card payment transparency
In a recent press release1 from the European Commission, Commissioner Margrethe Vestager, in charge of competition policy, said: “Many consumers use payment cards every day when they buy in shops or online. For years, the fees charged by the banks for these card payments were largely kept in the dark even though the costs are ultimately paid by consumers. The Interchange Fee Regulation has capped these fees and made card payments more transparent. This means lower costs to the benefits of millions of European consumers and retailers”. Commissioner for Financial Stability, Financial Services and Capital Markets Union, Jonathan Hill said: “It is good news that the remaining provisions of the Interchange Fee Regulation have now come into force. It will benefit consumers and service providers alike by setting transparent and clear ground rules for the EU payment card market. Last year, the Interchange Fee Regulation set caps on the main component of the charges merchants pay for accepting card payment. This has resulted in significantly lower costs on card payments for retailers and should lead to increased card acceptance in the EU. Under the rules it is possible to almost eliminate surcharging on consumer card payments. So, this regulation will bring some direct benefits to European consumers”.
Most people will be aware that an important part of the Interchange Regulation already went into force on 9 December 2015: this first part introduced caps on interchange fees for consumer debit and credit cards. What less people will be aware of is the fact that since 9 June 2016 an additional set of rules is applicable. This additional set aims at allowing the payment card market to work more efficiently. Key changes include:
Freedom to choose preferred payment type – Many payment cards have multiple brands, so-called “co-badging” – to name a few examples, In Germany payment cards have the Girocard and either the Maestro or V PAY options on them, in Belgium a single payment card often offers both Bancontact and Maestro as payment options, in Italy it is common to have Bancomat/PagoBancomat and Maestro on a single card or in Denmark Visa and Dankort. The new rules allow consumers to select and retailers to promote the most cost-efficient brand to minimise costs. In particular, retailers will be able to install a preferred brand in their payment terminals, and consumers have the final say when they make the payment. Previously, the preferred brand was typically selected by card issuing banks or card operating schemes, which have an interest in selecting the brand generating the highest interchange fee for them. For acquirers of Point of Sale transactions this means that provisions have to be taken in order to facilitate this payment choice.
One card for all – The ability to choose the preferred payment type will become even more important: Currently consumers often have to keep multiple cards for different card products issued from their bank. From now on, consumers will be able to require their bank to co-badge a single card (or in the future their mobile phone) with all card products that they issue to the consumer (e.g. Visa, MasterCard, Maestro or American Express). This does not change the bank’s right, however, to refuse to offer the customer a given card product (e.g. a premium card).
More information for consumers – All retailers will have to display the cards they accept in a clear and unequivocal manner at the entrance of the shop and at the till. For online sales, this information must be displayed on the website or other applicable electronic or mobile medium. Online PSPs need to collaborate with their merchant clients in order to ensure that this requirement is met.
Know what you pay for – Interchange fees are indirectly paid by retailers, who subsequently pass the fee on to all consumers in the form of higher prices. So far, interchange fees have largely been kept in the dark. Banks typically charged retailers a single “blended” fee for card transactions using different brands, although the interchange fee they paid for each type might have been different. The new rules will provide transparency: Banks will now have to specify to the retailer the fee for each transaction, unless the retailer explicitly requests a blended fee. Acquirers and PSPs need to adapt their pricing structure and billing in order to comply with this requirement.
Separation of Card Scheme and Processing – this provisions aims at the split between these entities mandating that these shall be independent in terms of accounting, organisation and decision-making processes. This provision aims at stimulating competition at the processing level and should give acquirers and issuers the option of choice.
Steering Rules – merchants are now allowed to steer their customers toward their preferred (cheaper) method of payment. As part of these rules, merchants are now allowed to share details of the interchange and Merchant Service Charges they pay with consumers. Any confidentiality clauses in Merchant Agreements with this respect no longer apply. Acquirers and PSPs need to be aware of this.
With these last additions, all elements of the Interchange Fee Regulation are now fully applicable. These new rules aim at making the costs of payments with debit or credit cards more transparent to retailers and consumers and allow them to make efficient choices. There are more regulations underway that affect the payments business such as the Payment Service Directive 2. These will be covered in separate posts.