Financial Legislative Proposals MEUSAC Consultation Meeting 26 th November 2013 Herman Ciappara
Financial Legislative Proposals The following Directive and Regulation are being proposed by the Commission: 1) Directive on the Comparability of Fees related to Payment Accounts, Payment Account Switching and Access to Payment Accounts with Basic Features (PAD) 2) Regulation on Interchange Fees for Card Based Payment Transactions (IF) 2
Payment Account Directive (PAD) Background: • Further development of the single market in the area of Financial Services is of primary importance for growth and competitiveness End market fragmentation Elimination of barriers and obstacles to movement of services Promote financial inclusion • Single Market Act I (Apr 2011) – transparency of bank fees, access to a basic payment account Enable consumers to participate in the single market • Single Market Act II (Oct 2012) – give access to a basic bank account, ensure bank account fees are transparent and comparable, and make switching of payment accounts easier 3
Payment Account Directive (PAD) Current issues: • Lack of clarity of payment account fees make it difficult for consumers to make informed choices • Process of switching from one payment account to another is lengthy and complex • Substantial portion of EU consumers do not have a payment account – many of them facing difficulties in opening a payment account Payment accounts are a vital tool for consumers to participate in the economy and society Unbanked consumers hinder the move of society towards the adoption of more cashless transactions 4
Payment Account Directive (PAD) With the view of enhancing EU integration, this proposal aims to: (a)Improve the transparency and comparability of fee information in relation to payment accounts (b)Facilitate the switching between payment accounts (c) Eliminate discrimination based on residency with respect to payment accounts (d)Provide access to a payment account with basic features within the EU 5
Payment Account Directive (PAD) Payment Account transparency: • Standardised terminology for common payment services across the EU • Provision of fee information document and statement of fees provided to consumers at least once a year • Comparison website to be maintained in all Member States Switching of payment accounts: • Switching shall be provided on a national and cross border level • 15 day overall deadline for national switching while a 30 day deadline for cross-border is envisaged • Lead role given to the receiving PSP 6
Payment Account Directive (PAD) Access to Basic Payment account: • Individuals who are legally resident in a Member State will be able to open and use a payment account anywhere in the Union • Basic payment account will be available regardless the place of residence or financial situation of individual • Basic Payment account must be offered by at least one PSP • Basic Payment account to include facility to deposit, withdraw, execution of direct debits, credit transfers, payment card and internet banking • Services must be offered free of charge or at a ‘reasonable’ price 7
Regulation on Interchange Fees (IF) Background: • Further development of an EU-wide market for electronic payments enabling stakeholders to enjoy full benefits of the internal market, including e-commerce, in line with Digital Agenda 2020 Card payment market dominated by two international schemes Current business rules and practices are hindering the creation of a fully effective internal market Barriers to competition via new entrants, obstacles to movement of services Lack of efficiency and innovation in card payments instruments and card-based payment transactions 9
Regulation on Interchange Fees (IF) Current issues: • Wide variety of IFs across member states leading to a fragmented market • Currently no legislation in the EU regulating interchange fees • Several member states are starting to regulate creating a need for consistency • Lack of accurate information on fees paid results in inefficient pricing • High IFs paid by merchants result in higher prices for consumers • Card companies compete to attract issuing banks through higher IFs rather than lower fees, in contrast to normal market behavior • Incentives given to cardholders to use highest revenue generating cards 10
Regulation on Interchange Fees (IF) Current issues: • Substantial cost differences between retailers in different member states • Difficulties for retailers to formulate EU-wide price strategies for product & services • IFs applicable are those at Point of Sale (country of retailer) – restriction on cross-border acquiring • Restriction on market entry limiting competition - new, innovative and domestic payment services cannot enter the market as banks expect at least similar revenues derived from established card schemes 11
Regulation on Interchange Fees (IF) The proposed IF Regulation aims to: • Reduce and harmonise interchange fees to promote an increased acceptance and usage of card payments • Reduce dependency on cash and promote e-commerce • Remove the market fragmentation currently existing as a consequence of diverging fees • Promote movement of services within the internal market by liberalizing cross-border acquiring • Promote innovation and facilitate new entrants to the market thus benefiting consumers due to increased competition • Facilitate a reduction in retail prices through lower charges 12
Regulation on Interchange Fees (IF) With the view of enhancing EU integration, this Regulation proposes the following: Interchange Fees (Chapter 2) • Capping of cross border transaction interchange fee at 0.2% and 0.3% for debit and credit cards respectively (along lines of existing competition settlements with Mastercard & Visa ) within 2 months of Regulation • Apply same caps on a domestic level for all consumer debit and credit cards within 2 years of Regulation For commercial cards, ATM cash withdrawals, and three party schemes interchange fees not regulated 13
Regulation on Interchange Fees (IF) Business Rules (Chapter 3) Introduce several mechanisms to allow more effective functioning of the market : Licensing: Removal of territorial restrictions in licensing agreements for issuing payment cards or acquiring payment card transactions or to operate on a cross-border basis within the entire Union territory Separation of payment card scheme and processing entities: Establishes organisational separation, and prohibits territorial discrimination in processing rules whilst mandating technical interoperability of processing entities systems Processors are allowed to compete for customers of the schemes 14
Regulation on Interchange Fees (IF) Co-badging and choice of application: Making co-badging of different brands possible on same card, however the customer is able to choose the brand of payment instrument at the POS, and removal of discriminatory automatic routing mechanisms Unblending: Acquiring banks shall offer and charge merchants individually for different categories and different brands of payment cards and not impose a single price, and provide the relevant information on the amounts applicable for the different categories and brands 15
Regulation on Interchange Fees (IF) Honour all Card rules: Restriction not to oblige merchants to honour all cards, allowing merchants to refuse expensive cards of a given brand, as long as the customer is adequately informed Steering: Licensing agreements will not be allowed to prevent the merchant from steering customers to use preferred payment instruments. Full information on fees and merchant charges can be disclosed to payers Information to payee on individual payment transactions: Full information on fees given by acquirer to merchant per payment transaction, on a periodic basis as agreed with the merchant 16
Thank you for your attention
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