|
|
The European Central Bank has outlined its political intent to promote a European payments network to rival MasterCard and Visa but stressed that market players should seek “additional clarity” on 'interchange fees' from the European Commission to help build it.
While the European Commission has driven much of the work on creating an EU payments system both in legislative and anti-trust activity, the European Central Bank has always seen itself as the guardian of the eurosystem and is now flexing its muscles – albeit diplomatically – on bank card fees and the architecture of the market.
In a confidential report seen by MLex, the ECB talks explicitly of how to construct a European rival to MasterCard and Visa, not only for economic benefits but to pursue the explicit political aims of the Single Euro Payments Area (SEPA) – the continent's project to allow consumers to use cards freely across all countries. However, its comments may not be seen as constructive in an already fraught regulatory environment.
In the past, the ECB has pressured the commission to give guidance on interchange fees with its decision on MasterCard, but even now it is telling market players to seek greater clarity on the fees from DG Competition, and it raises concerns about the effects of a sharp drop in the fees – a warning likely to be of interest to MasterCard as it recalculates its charges by a June deadline.
Cracking the 'duopoly'
European Competition Commissioner Neelie Kroes has often raised the prospect of a rival to the two international schemes, stating in a January speech that “together with the European Central Bank, we consider it far preferable that there are more than just two pan-European card schemes in
But while Kroes added that it is not her job to “engage in industrial policy” on this issue, the ECB has thought otherwise, outlining both economic and political imperatives to create the rival. Nevertheless, many have questioned what form it would take and what benefits it would bring, if any.
After months of consultation, the ECB believes that the new scheme will “not be a copy” of existing international networks “but be more like some of the current domestic schemes”. Nevertheless, it expresses its preference for a 'four-party system', i.e. the model adopted by MasterCard and Visa, not that used by American Express.
“A card scheme clearly associated to Europe, just as other card schemes are associated with other major economies, is a logical political requirement; Europe needs its own card scheme in the same way as it needs its own currency,” states the document, adding that such a scheme would “prevent unjustified direct influence of foreign governments”.
“European policies need to be pursued because European interests in issues such as data protection or economic sanctions need to be under the sole influence of European authorities,” says the bank, in comments bound to attract criticism from the banking sector.
The central bank floats several possible formats for the European rival including the expansion or interlinking of existing domestic schemes; converging individual national schemes over time; and separate initiatives led by banks or non-banks, such as retailers or mobile operators.
It admits, however, that such a rival is unlikely to come about “from scratch”, adding that banks have antitrust concerns that make them reluctant to start collaborating on such a project. Furthermore, some of the models may lead to parallel infrastructures and may not get off the ground if “substantial markets are absent from the structure”.
Although the ECB states that it has a mandate to push such a political project, there will be those who think that the bank is acting outside its remit in trying to shape the market in this manner.
The central bank refers to three on-going projects to set up a rival scheme: Payfair backed by large retailers; EAPS, a co-operation between domestic schemes in
But, crucially, the ECB states that “clarity regarding interchange fees” is essential for the emergence of any new scheme.
Interchange fees: the ECB as “honest broker”?
In public, the ECB has always had a neutral position on interchange fees, but behind closed doors in
The central bank exhorts the European banking industry to enter into a “realistic, fresh and constructive dialogue with DG Competition” with the aim of gaining “a maximum degree of clarity and regulatory certainty” on the fees.
“Without this additional clarity the European banking industry is unable, or unwilling, to take investment decisions,” states the bank. “The ECB stands ready to play the role of 'honest broker' in this context.”
The ECB is also seeking to even out the differences in interchange fees across different countries but warns that while the abolishment or “a sharp drop” in the fees would be manna to merchants, this “might also lead to a sudden increase in cardholder costs in some countries.”
“The latter would be detrimental to the success and objectives pursued by the SEPA project.”
As MasterCard and Visa both ponder what level to set their fees to avoid further antitrust scrutiny, the central bank has seen fit to establish what it believes should constitute interchange, clearly stating that while the fee is to be used “foremost as a means of balancing costs”, a “small profit margin” may be built in. It does not say what this margin may be.
Like the commission, the ECB believes the fee should cover costs directly related to balancing a transaction, such as acceptance, switching and authorisation, but it should exclude costs related the the bank-cardholder relationship (e.g. opening an account, reward programmes, insurance) or the relationship between a bank and a merchant (e.g. payment guarantees).
But while the ECB warns that the only way to have legal certainty is to set the interchange level at zero, it does call on a “fresh” approach after decades of wrangling over the fees, asking players not just to continue “defending domestic status quos that found their basis in the domestic payment systems of the 1980s.”
Surcharging: transparency at the till
The ECB issues a parting shot to the payments industry, recommending to merchants that they add a margin onto transactions made at the till on more expensive card products, a practice known as surcharging. It advises retailers, however, to hold back from adding a surcharge to “basic card products”.
In voicing this strategy, the bank is joining Kroes' recent call to bring greater transparency to consumers in the costs of payments instruments.
The report does contain the caveat that the proposals “do not constitute an official position at this stage” but they remain the firmest indications to-date of the ECB's views on the payments markets and interchange fees.
By Lewis Crofts