ESBG amendment proposals Regulation on interchange fees for card-based payment transactions

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ESBG amendment proposals

Regulation on interchange fees for card-based

payment transactions

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Doc 1059/2013/Vers 1.0 NBI

ESBG amendment proposals

Regulation on interchange fees for card-based payment transactions

1- Amendment proposals to Articles

Article 2, para 4

Justification: the wording of this Article needs enhancing in order to align the terminology with other European legislation (Payments Services Directive) and avoid interpretation.

Article 4.3 and 4.4 Interchange fees for all consumer debit and credit card transactions

Text proposed Amendments by Parliament

(4) 'debit card transaction' means an card payment transaction included with prepaid cards linked to a current or deposit access account to which a transaction is debited in less than or 48 hours after the transaction has been authorised/initiated.

(4) 'debit card transaction' means an card payment transaction included with prepaid cards linked to a current or deposit access account to which a transaction is debited on the payment account to which the card is linked in less than or 48 hours after the transaction has been authorised/initiated.

3. With effect from two years after the entry into force of this Regulation, payment service providers shall not offer or request a per transaction interchange fee or other agreed remuneration with an equivalent object or effect of more than 0,2 % of the value of the transaction for any debit card based transactions.

4. With effect from two years after the entry into force of this Regulation, payment service providers shall not offer or request a per transaction interchange fee or other agreed remuneration with an equivalent object or effect of more than 0,3 % of the value of the transaction for any credit card based transactions.

3. With effect from twofour years after the entry into force of this Regulation, payment service providers shall not offer or request a per transaction interchange fee or other agreed remuneration with an equivalent object or effect of more than 0,2 % of the value of the transaction for any debit card based transactions.

4. With effect from twofour years after the entry into force of this Regulation, payment service providers shall not offer or request a per transaction interchange fee or other agreed remuneration with an equivalent object or effect of more than 0,3 % of the value of the transaction for any credit card based transactions.

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Justification: The proposed timeframe for national debit and credit card transactions to comply with the Regulation (2 years) is too short to enable payment service providers to depreciate investments in infrastructure which have just been made, or which will have to be made to comply with the Regulation. A 4 year timeframe would allow for such depreciation.

New Article 5 Interchange fees for consumer debit and credit card transactions with an individual value of less than EUR 30,00

Justification: With a single interchange cap (for either debit or credit card transactions) lower value transactions (in particular debit card transactions) will be subsidized by larger value transactions. This will prevent the development in particular by new entrants of innovative products to substitute cash for low value transactions (e.g. in the 1 cent to 30 EUR segment). This would be a much undesirable consequence as replacing cash in this segment is one of the outstanding payment efficiency challenges. To mitigate this, individual debit and credit card transactions of a value up to 30 EUR (i.e. the low value payment threshold defined in the Payment Services Directive/PSD2 proposal) should be subject to a maximum flat (instead of an ad valorem) interchange fee of 6 eurocents per transaction – the actual amount being set by the issuer. Of course each merchant/retailer will be informed about the fee(s) applying.

New Article 6 Exceptions to Articles 3, 4 and 5

Articles 3 and 4 apply to debit and credit card transactions with an individual value higher than EUR 30,00. For other such transactions payment service providers may offer or request a different per transaction interchange fee which shall not exceed 6 eurocents.

Articles 3, 4 and 5 do however not apply where either (a) payment service provider(s) and (a) retailer(s) bilaterally agree the level of interchange fee(s) to apply to their transactions, or where the level of interchange is fixed by national competent authorities on the basis of

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Justification: The significant differences which exist between Member States in the usage of both cash and non-cash payment instruments cannot be legislated away. Equally the freedom of payment service providers and payees to agree bilaterally, for example to support the introduction of stronger security features, and/or innovation, must be preserved.

New Article 7 Prohibition or circumvention

Justification: the Article is adjusted to take into account the proposal of adding a new Article 5 as per above.

Note: the numbering of the rest of the Articles would have to be reset as a consequence of the introduction of the 2 Articles proposed above. This numbering however has been left unchanged in this Position Paper.

Article 7.10 Separation of payment card scheme and processing entities

objective criteria in the relevant market(s).

For the purposes of the application of the caps referred to in Article 3 and Article 4, any net compensation received by an issuing bank from a payment card scheme in relation to payment transactions or related activities shall be treated as part of the interchange fee.

For the purposes of the application of the caps referred to in Article 3, and Article 4 and Article 5, any net compensation received by an issuing bank from a payment card scheme in relation to payment transactions or related activities shall be treated as part of the interchange fee.

Payment card schemes and processing entities shall be independent in terms of legal form, organization and decision making. They shall not discriminate in any way between their subsidiaries or shareholders on the one hand and users of these schemes and other contractual partners on the other hand and shall not in particular make the provision of any service they offer conditional in any way on the acceptance by their contractual party of any service they offer.

Payment card schemes and processing entities shall be independent in terms of legal form, organization and decision making. They shall not discriminate in any way between their subsidiaries or shareholders on the one hand and users of these schemes and other contractual partners on the other hand and shall not in particular make the provision of any service they offer conditional in any way on the acceptance by their contractual party of

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Justification: Whilst there is no objection to this principle that disposes that schemes and processing entities be independent in terms of legal form, organization and decision making, and that they shall not discriminate in any way between their subsidiaries or shareholders and users of these schemes and other contractual partners (a principle already transposed in 2007 by 2 consortial entities of the European savings and retail banking community, namely the Eufiserv Payments scheme and the Trionis processing company), there must concern that non-European schemes will not be compelled by these rules, thus enjoying a competitive advantage. How these rules would be enforced vis-à-vis de facto schemes and non-financial market participants is another open question. Article 7.12 Separation of payment card scheme and processing entities

Justification: mere clarification to the effect that “rules” cannot be offered, in order to prevent any potential confusion with “operation of a processing system”.

Article 7.13 Separation of payment card scheme and processing entities

any service they offer. Payment card schemes shall not make in any way licensing conditional on the acceptance of processing services they may offer.

Any territorial discrimination in processing rules operated by payment card schemes shall be prohibited.

Any territorial discrimination in processing rules operatedoffered by payment card schemes shall be prohibited.

Processing entities within the Union shall ensure that their system is technically interoperable with other systems of processing entities within the Union through the use of standards developed by international or European standardization bodies. In addition, processing entities shall not adopt or apply business rules that restrict interoperability with other processing entities within the Union.

Processing entities within the Union shall ensure that within 5 years of entry into force of this Regulation their system is technically interoperable with other systems of processing entities within the Union through the use of standards developed by either publicly or privately operated international or European standardization bodies. In addition, processing entities shall not adopt or apply business rules that restrict interoperability with other processing entities within the Union.

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Justification: As much work has already been undertaken by the Cards Stakeholder Group1_{, a} multi-stakeholder group of private market participants, to align such standards and formulate implementation guidelines (with both the European Commission and the European Central Bank kept well appraised of the work of this Group), stakeholders are acutely aware of the time necessary to transpose new standards as well as interoperability arrangements. The Regulation must be clarified in this respect, with a realistic deadline explicitly set. Equally it should be clarified that standardisation may be performed by either publicly or privately operated bodies, provided that FRAND (fair, reasonable and non-discriminatory) rules are applied.

Article 8.18 Co-badging and choice of application

Justification: The Regulation’s proposal that the choice of application always be the cardholder’s decision at point of sale is both unpractical (with the potential of generating check-out queues as customers fumbled to select one application) and fails to acknowledge technology developments

1_{The very prototype of the « multi-stakeholder group » which is considered under the new SEPA}

governance. Members of the Cards Stakeholder Group (CSG) are representatives of payment service providers, merchants/ retailers/wholesellers, schemes, vendors, processors

Where a payment device offers the choice between different brands of payment instruments, the brand applied to the payment transaction at issue shall be determined by the payer at point of sale.

Where a payment device offers the choice between different brands of payment instruments, the brand applied to the payment transaction at issue shall be determined by the payer at point of sale. The payer and the issuing payment service provider shall agree the card-based payment application(s) held and/or accessible by and/or through the payment device made available by the issuing payment service provider to the payer. The issuing payment service provider may offer to the payer a default payment application for each of the payment scenarios the payer may encounter. Such default application would be the application effectively used unless the payer at point or time of sale decides to select another payment application held and/or accessible by and/or through his/her payment device

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(e.g. contactless cards, unattended terminals…). A balanced alternative has been formulated by ESBG, recognizing the prominent role of the payer in agreeing or not to hold a payment device, with full information about the payment application therein or accessible through it, including the default application which could apply.

Article 10.25 Honour All Cards rules

Justification: the same level of transparency should apply to the issuing and the acquiring sides. Article 11.27 Steering rules

Issuing payment service providers shall ensure that their payment instruments are visibly and electronically identifiable, enabling payees to identify unequivocally which brands and categories of prepaid, debit, credit or commercial cards or card-based payments based on these are chosen by the payer.

Issuing payment service providers shall ensure that their payment instruments are visibly and electronically identifiable, enabling payees to identify unequivocally which brands and categories of prepaid, debit, credit or commercial cards or card-based payments based on these are chosen by the payer. Information about the payment instruments offered by issuing payment service providers shall also be displayed prominently on their website or other applicable electronic or mobile medium.

Any rule in licensing agreements, scheme rules applied by payment card schemes and in agreements entered into between card acquiring payment service providers and payees preventing payees from informing payers about interchange fees and merchant service charges shall be prohibited.

Any rule in licensing agreements, scheme rules applied by payment card schemes and in agreements entered into between card acquiring payment service providers and payees preventing payees from informing payers about interchange fees and merchant service charges shall be prohibited. Where payees choose to inform payers about interchange fees and merchant service charges, they must also inform payers about the savings that the present Regulation allows payees to make, and the cost to payees of accepting cash, and cheques, where they do.

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Justification: at point of sale payers generally have the choice between a range of payment instruments, not only between debit and credit cards, and their different brands. As the ambition of this Regulation also is to have payers make more informed choices, it is essential that the information made available by payees is not limited to interchange fees and merchant service charges, but also covers the other payment instruments they accept.

Article 16 Review clause

Justification: The 1 year delay for the presentation of the Commission’s report is to allow the amendment proposed above to Article 4.3 and 4.4. A separate point is the content of the Commission’s report. A key justification for capping interchange is that the benefits of such capping are passed on to consumers. Data from markets having introduced such caps are either inconclusive, or show that merchants retain (the bulk of) any savings from a reduction in interchange. In order to inform any evolution of policy it is essential that the Commission presents a complete picture of the market, including an independent, authoritative assessment as to whether the reduction of interchange was passed on to consumers.

2- Amendment proposals to Recitals

Recital 12

Four years after the entry into force of this Regulation, the Commission shall present to the European Parliament and to the Council a report on the application of this Regulation. The Commission’s report shall look in particular at the appropriateness of the levels of interchange fees and at steering mechanisms such as charges, taking into account the use and cost of the various means of payments and the level of entry of new players and new technology on the market.

FourFive years after the entry into force of this Regulation, the Commission shall present to the European Parliament and to the Council a report on the application of this Regulation. The Commission’s report shall look in particular at the appropriateness of the levels of interchange fees and at steering mechanisms such as charges and levels of merchant pass through of reduction in interchange (on the basis of annual industry panel studies), taking into account the use and cost of the various means of payments and the level of entry of new players and new technology on the market.

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Justification: There is no analysis as to the reason(s) for which existing legislation (including the stringent provisions of the Treaty) were unsuccessful to “redress this situation” i.e. the alleged persistence of high interchange fees and rules preventing e.g. banks from offering cross-border services or retailers from reducing payment costs. There is no explanation either as to why new legislation would succeed where the existing one failed.

Recital 14

Justification: The tenor of this Recital has been aligned with the objectives otherwise heralded for this Regulation, namely the necessity to establish legal certainty and the further construction of the internal market.

Recital 21

Commission and national competition authorities has not been able to redress this situation.

hypothesis that the application of existing legislation by the Commission and national competition authorities has not been able to redress this situation.

The application of this Regulation is without prejudice to the application of Union and national competition rules. It should not prevent Member States from maintaining or introducing lower caps or measures of equivalent object or effect through national legislation.

Although the application of this Regulation is without prejudice to the application of Union and national competition rules, it should be acknowledged by Member States that by legislating via a Regulation rather than a Directive the European legislator is seeking the market convergence that will medium term assist in generating more of a single market for payments. It should not prevent Member States from maintaining or introducing lower caps or measures of equivalent object or effect through national legislation.

In accordance with the principle of technological neutrality set out in the Digital Agenda for Europe, this Regulation should apply to card based payment transactions regardless of the environment in which this transaction takes place, including through retail payment instruments and services which can

In accordance with the principle of technological neutrality set out in the Digital Agenda for Europe, this Regulation should apply to card based payment transactions regardless of the environment in which this transaction takes place, including through retail payment instruments and services

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Justification: To fully align with the objective pursued, i.e. technological neutrality, the last section of this Recital should be deleted, as it gives way to different interpretations, and as underlying market scenarios may evolve rapidly.

Recital 24

Justification: This Recital requires amending in order to:

- Acknowledge that payers make at point-o-sale a choice between a range of payment instruments, and that such guide should be guided by information about the costs to merchants of all such payment instruments – and not only card-based instruments.

- Address the mis-representation that charge-backs would be incentives – whereas they exist for consumer protection purposes.

- Address the suggestion that specific action by a subset of market participants would need “countering”, where the objective of the legislator should be to enable a level playing field. Recital 27

be off-line, on-line or mobile. which can be off-line, on-line or mobile.

Consumers tend to be unaware of the fees paid by merchants for the payment instrument they use. At the same time, a series of incentivizing practices applied by issuing payment service providers (such as travel vouchers, bonuses, rebates, charge backs, free insurance, etc) may steer consumers towards the use of payment instruments generating high fees for issuing payment service providers. To counter this, the measures imposing restrictions….[…]

Consumers tend to be unaware of the fees paid by and the overall cost to merchants for the payment instrument (either cash, or debit or credit card, or cheque, or other as relevant) they use. At the same time, a series of incentivizing practices applied by issuing payment service providers (such as travel vouchers, bonuses, rebates, charge backs, free insurance, etc) may steer consumers towards the use of payment instruments generating high fees for issuing payment service providers. To contribute to a level playing field counter this, the measures imposing restrictions… […]

Payment instruments entail different costs to the payee, with certain instruments being more expensive than others. Except where a payment instrument is imposed by law for certain categories of payment and cannot be refused due to its legal tender status, the payee should be free to steer payers towards the use

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Justification: The objective of the proposed amendments to this Recital is to present a balanced picture of the reason for “restrictions imposed on payees”, where they exist, and the remedies. of a specific payment instrument. Card

schemes and payment service providers impose several restrictions on payees in this respect, examples of which include restrictions on the refusal by the payee of specific payment instruments for low amounts, on the provision of information to the payer on the fees incurred by the payee for specific payment instruments or limitation imposed on the payee of the number of tills in his shop accepting specific payment instruments. These restrictions must be abolished.

of a specific payment instrument. In order to be able to compete with payment instruments imposed by law and/or which cost is not transparent to payees, in some instances Ccard schemes and payment service providers imposed several restrictions on payees in this respect, examples of which include restrictions on the refusal by the payee of specific payment instruments for low amounts, on the provision of information to the payer on the fees incurred by the payee for specific payment instruments or limitation imposed on the payee of the number of tills in his shop accepting specific payment instruments. These restrictions must be abolished, as should be abolished in parallel any obligation to accept cash.

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About ESBG (European Savings Banks Group)

ESBG: The European Voice of Savings and Retail Banking

ESBG (European Savings Banks Group) is an international banking association that represents one of the largest European retail banking networks, comprising of approximately one-third of the retail banking market in Europe, with total assets of over €7,300 billion, non-bank deposits of €3,500 billion and non-bank loans of almost €4,000 billion (31 December 2012). It represents the interests of its members vis-à-vis the EU Institutions and generates, facilitates and manages high quality cross-border banking projects.

ESBG members are typically savings and retail banks or associations thereof. They are often organised in decentralised networks and offer their services throughout their region. ESBG member banks have reinvested responsibly in their region for many decades and are a distinct benchmark for corporate social responsibility activities throughout Europe and the world.

ESBG - Association internationale sans but lucratif/Internationale vereniging zonder instoogmerk/ International not-for-profit association

Rue Marie-Thérèse, 11 ￭ B-1000 Brussels ￭ Tel: +32 2 211 11 11 ￭ Fax: +32 2 211 11 99 [email protected] ￭ www.savings-banks.eu