A Finextra member 17 July, 2013, 11:09 0 likes

So, EU merchants will pay 0.2% on Visa/MasterCard transactions whilst the same transaction (with the same) card in other parts of the world will cost 10-12 times more?.. Yeah, sure thing...

A Finextra member 17 July, 2013, 13:11 0 likes

I spoke to MasterCard and FT. The (leaked) planned capping, at this stage, concerns just Visa and MC, i.e not Amex (who impose the highest charge on retailers). Also, it is not clear whether (and how) non-EU card transactions can be capped.

If I am a merchant and get 0.2% rate with V/MC and 2.5-3% with Amex (who is profiting both on the acquiring and the issuing sides), will let Amex carry on?.. If Amex is capped too, that gives them (unfair) advantage - for the above reason...

As for non-EU cards, there could open interesting arbitrage opportunities (for multinationals, on the retail and banking side)...

More clarity will be provided on 24 July.

A Finextra member 18 July, 2013, 10:51 0 likes

I'm not sure how this is possible. There are so many different players in a credit / debit card transaction, of which the card schemes are only one. So is this 0.2% fee on interchange fee charged by the card scheme, or is it at the aquirer end. If the aquirer then how can the card schemes and banks make money from transactions, remembering they need x just to support the infrastructure.

I think this is only possible if it applies to interchange fees only, but that wont necessarily stop busiensses seeing fees of 3% (or higher in some cases). The profie would simply be moving away from teh card scheme and back to the bank or to the aquiring bank...

Then we have issues with other schemes outside the EU etc etc...Not sure just how practicle this all is...

A Finextra member 18 July, 2013, 17:34 0 likes

Will The EU Harm Lower Income Families By Reducing Merchant Service Charges?

In a recent leaked document the EU is purported to be considering a limit of 0.2% on the merchant service charge for credit cards and debit cards; these charges underpin a huge infrastructure that protects merchants, retailers and therefore vital tax income to governments. Is it the place of regulators to remove the ability of an industry to protect cardholder and the wider social infrastructure?

Every open market transaction needs a willing buyer and a willing seller, when regulators try to affect this dynamic the consumer ends up paying the price, but perhaps in a different way.

So what happens when you hack away at a 30 year old industry and remove 80% of an income level? We are fortunate (?) in the UK to have a worked example of this; when pension advisors were paid a commission to sell financial products and get paid commissions, regulation was introduced that effectively killed this industry layer, and has in the view of many left a generation without adequate retirement advice and under performing investments, this is a social timebomb that the next generation of tax payers will suffer the cost of. The resolution is of course more intervention, government pushes mandatory pension contributions in poorly resourced funds, we now have a 2 tier investment economy where more wealthy investors are achieving 11% annual returns with paid advisors and central government in suggesting that 3% is adequate for everyone else.

Costs will always need to be covered, so how will the consumer be protected if the costs of securing and managing the infrastructure of the card industry are slashed by a myopic regulator, the costs will simply move, they won’t go away.

So with the largest chunk going to the card issuer, if this revenue share is removed the cost of cards will undoubtedly increase, will the issuers look at this as a way to increase margins with larger than required increases?

The management of the lifecycle of a card is an expensive business, massive anti-fraud and fast global authorisation a scheme switching processes make for quite an overhead; the investment has allowed the proliferation of cards and a largely inclusive financial environment.

We estimate that the banking and financial services spend considerably more on fighting financial fraud than the police and criminal justice spend investigating the fraud that slips through the net. Does this mean that the pressure on our police to investigate complex and often international fraud will impact on their ability to protect us?

So what does the future look like with a payments industry that becomes unfit for task due to under-investment?

Merchants may no longer be insulated from fraud and chargebacks, lower charges don’t allow for this mitigation of central services. Will merchants close who are not adequately protected? Will merchants select the people they will do business with because of the perceived risk and cost of processing?

Cardholders at the lower end of the social ladder, will find that their cards are suddenly very expensive, retailers may turn them away as well as the restriction in the availability of cheaper cards to own.

As UK central government sells down the bank stocks, these issues will be outside the control of the politicians and land politicians in the firing line with voters. If you bail out the banks and then services are perceived to rise massively it makes for a “botched job” for whoever is at the helm when this ship docks.

Lower charges on cards, means that businesses will fail, the card industry will shed jobs, organised crime will extend their operations against card holders and the everyday consumer will be left to pick up the bill.

When a bloated E.U. stops looking at their feet and looks to the horizon they might just see the ludicrous nature of their potential actions and how everyone except organised crime and Brussels expense accounts will suffer.