PEOPLE are used to cashless payments for shopping by card, but though they do not realise it, such transactions often include fees. To reduce costs for both retailers and consumers, the European Council has adopted a resolution to cap one type – interchange fees – for payments made with debit and credit cards.
Though merchants are pleased, banks have criticised the regulation, which was adopted on April 20. The change will cap fees at 0.3 percent of the value of the transaction for credit card transactions and 0.2 percent of the value of the transaction for debit card. The new rules will take effect in about six months.
“We are not convinced that the desired benefits for cardholders will materialise,” Zuzana Murcko, spokeswoman of the Slovak Banking Association (SBA), told The Slovak Spectator. “We do not expect that merchants [in response to the adopted regulation] will reduce prices. Contrary to this, lower revenues from interchange fees may be reflected in a slowdown of investments into innovative bank products and technologies. The regulation was already introduced, for example in Spain, but it has not proved effective.”
The scheme
Interchange fees are charged by a cardholder’s bank to a retailer’s bank every time a consumer makes a card-based purchase. While consumers are often unaware of such fees, they cost retailers and ultimately consumers tens of billions of euros every year. The level of the fees varies widely from one member state to another, creating barriers to the EU internal market. The new rules will encourage competition and make it easier for new entrants to join the market, leading to broader availability of payment instruments, the council believes.
Interchange fees are part of the so-called Merchant Service Charge paid for the administration of card transactions, while so far banks have determined all so-called Merchant Service Charges (MSCh) paid by retailers for the administration of card transactions, the regulation may settle the current variability of at least the interchange fee.
Retailers welcome change
Despite the narrow scope of the forthcoming cap, retailers say it will help them cut costs, but they admit they have no plans to lower prices.
Gabriel Csollár, chairman of the board of directors of the Coop Jednota Slovensko retail cooperative, specified that they register charges banks invoice to retailers for processing of card transactions as consuming between 0.67 percent to 1.3 percent of their revenues in cases where they have a signed agreement with a bank. Others may charge up to 2 percent.
“Even though the capping does not mean any dramatic adjustment, in terms of the large amount of operations which card payments certainly are, costs will be reduced,” Csollár told The Slovak Spectator.
Pavel Škriniar from the web-portal Finančná Hitparáda says retailers are unlikely to cut prices, specifying that an ordinary grocery bill can be €50, meaning 0.5 percent equals €0.25 in savings.
“If they do so it will be only in a low percentage that nobody will notice,” Škriniar told The Slovak Spectator.
In general, Škriniar perceives the regulation negatively. According to him, European customers are willing to pay by card instead of cash in the current conditions in the market, therefore the approved regulation is inadequate.
“The European Parliament should intervene in cases of disproportion and contradiction with the direction of society,” said Škriniar.
Tomáš Ferenčák, communication coordinator in Tesco Stores SR, recalled that interchange fees vary from market to market.
“But we always aim to support the principle that fees between card schemes and stores should be fair and should reflect the overall level of benefits that both the consumer and the store receives,” Ferenčák told The Slovak Spectator.
The banks expect that the EU’s decision to regulate interchange fees would reduce their revenues and that this may lead to a change of their fee policy, reduction of services and a slowdown in investments.
“There are cases from Poland, Spain and the United States in which banks have increased or established once again charges for account management or payment cards,” Katarína Kakalíková, regional vice president for public policy for central Europe at MasterCard, told The Slovak Spectator. “There are also concerns that innovations would slow down because there will be less money to finance them.”
Slovenská Sporiteľňa (SLSP) spokeswoman Marta Cesnaková cited experiences with regulation in Spain, the United States and Australia in noting that lowered costs on the side of merchants have not been reflected in a reduction in the prices of goods or services for consumers at all.
“On the contrary, they may expect that they will lose benefits which banks now provide to them with cards,” Cesnaková said.
Marcel Gajdoš, Visa Europe’s regional director, recalled that the disadvantages of the cap have to be perceived in the context of technological development. There is a real possibility of slowing down the implementation of technological innovations because of lack of bank investment, he said.
“Such a development might have a negative impact on the further arrival of contactless technology and making mobile payments available,” Gajdoš told The Slovak Spectator.
Gajdoš recalls that the European Commission assumes that the regulation would bring savings of about €6 billion to European retailers, while Visa Europe invests annually more than €200 million into new payment technologies.
“If merchants invest a fraction of their savings, we really can work together in making a big step forward in improving our clients’ experiences,” said Gajdoš.
Škriniar of Finančná Hitparáda added that present technologies save costs and time, but also that they had to be invented by someone.
“From 15-20 years ago, such a restriction would have blocked the development of payment cards due to the high fees for connection with the authorisation centre,” Škriniar said.
MasterCard also sees another drawback of the forthcoming regulation in its narrow scope, as the cap relates only to four participants: the card holder, the issuing bank, the receiving bank and the retailer.
“Thanks to the disposal of so-called pure three-side models the regulation specifies an unequal approach to all the players on the market,” Kakalíková said.
In addition, the amendment will not apply to cash withdrawn from a cash dispenser or commercial cards used exclusively for business.
Factors affecting charges
All banks take MSChs after individual negotiation with the retailer. The MSCh includes the interchange fees, the costs associated with POS terminals, communication, repairs, risk monitoring costs and a profit margin for the banks. Thus the current interchange fees are dependent on the agreement between bank and retailer.
“The reward depends most often on the volume and amount of transactions,” Gajdoš said.
Cesnaková recalls that the price per transaction varies also according to retailer sales and the type of payment card. The variability of the costs which are associated with the average transaction depends on how the transaction was made, she said.
MasterCard deems the amount of the risk associated with transaction, the level of the infrastructure development and innovation as the essential factors.
“For these reasons it is so problematic to determine the unified cap for inter-bank products across the whole EU,” Kakalíková said.
