The European Commission on Wednesday published draft
regulations that include capping the interchange fee rate banks charge for
consumer card transactions at 0.3 percent. However, while the regulations
explicitly exclude commercial cards and so-called "three-party"
providers (of which the most notable is American Express), experts told BTN that there could be indirect
consequences for corporate card customers.
On the plus side for corporate buyers, consumer card perks,
such as free airline mileage, are likely to become much less attractive, said
Jim Coufal, director of payment systems and expense management for TCG
Consulting. On the minus side, merchants may start surcharging or refusing
corporate cards, while issuers may reduce their rebates and even withdraw from
certain markets.
An interchange fee is the fee that an acquiring bank (the
bank used by a merchant for accepting card payments) pays the issuing bank of
the cardholder. The acquiring bank in turn charges a merchant service charge (also
knows as a merchant fee), comprising the cost of the interchange fee and such other
fees as equipment hire. Typically, the interchange fee accounts for
three-quarters of the merchant service charge, sources told BTN.
The European Commission said its draft Interchange Fees
Regulation is intended to end the "unjustifiably high levels of these
fees." In addition to capping credit card interchange fees at 0.3 percent,
debit card fees would be capped at 0.2 percent. Initially, the caps would apply
only when European Union-based cardholders use their cards in a different EU
country, but after 22 months they would be extended to domestic transactions.
Interchange fees are set between acquirers and issuers, and
the Commission is particularly unhappy that issuers attract customers with
expensive benefits, like mileage, that are "subsidized" (in the
Commission's own language) by charging higher interchange fees. According to
the Commission, interchange fees for high-end credit cards can be 25 times
higher than for standard debit cards. Since these "subsidies" would disappear
with the cap, Coufal believes issuers would respond by charging for their most
generous benefits or eliminating them altogether.
"It will probably help corporate travel programs
because there will be less incentive for travelers to use their private credit
cards in preference to their corporate cards," said Coufal.
Peter Sidenius, director of payments consultancy Edgar, Dunn
& Co., concurred. "That's what we saw in Australia," where
interchange fees are regulated, he said. "Benefits were cut or annual fees
were increased, and we saw cardholders giving up."
More worryingly for travel managers, while the regulations would
ban merchants from surcharging for cards covered by the caps, the Commission
also plans to liberalize controls on surcharges for cards not covered by the
caps. It intends to limit the Honour All Cards rules, which are imposed by card
schemes and force merchants to surcharge all cards equally. Honour All Cards
rules also force merchants to accept all cards from a brand, such as Visa,
MasterCard or Amex, or not accept the brand at all. Under the new regulations, according
to a statement from the Commission, "for the cards that are not subject to
the caps (mainly commercial cards issued to businesses and three-party schemes,
such as American Express or Diners [Club]), retailers will be able to surcharge
for them or to refuse to accept them. In this way, the costs imposed by these
expensive cards can be passed directly on to those who benefit from them rather
than being borne by all consumers." Elsewhere, the Commission indicated
its belief that "surcharging and other measures are likely to be used by
merchants" against more expensive cards.
Sidenius confirmed that merchants would be able to
discriminate between consumer and commercial cards at the point of sale.
However, he said, travel and entertainment merchants "may not want to do
this to their high-value customers. The question is, how willing would a hotel
be to upset its core customer base?"
However, one travel management company executive told BTN that his company likely would engage
in discriminatory surcharging and suggested other industry suppliers would as
well. "It would be a good chance for us to give preferable pricing for
cards with a lower fee," the TMC executive said. "I assume the same
would be true for the airline industry. It could create a lot of movement."
Another little-noticed rule in the new package that would
help TMCs and other merchants in this respect: Card companies no longer would be
allowed to bar merchants from disclosing the fees they pay to acquirers, a
practice that long has suppressed transparency in the card business.
It is possible the threat of surcharging and nonacceptance
will pressure Amex and commercial card issuers to lower their fees voluntarily.
Sidenius believes the Commission has not intervened in the commercial card
market because it feels unable to regulate dominant player Amex, because as a
three-party model it is both issuer and acquirer with no interchange fee that
could be regulated.
Even so, Amex itself clearly is nervous about the improved
potential for merchants to discriminate against it. A statement from the
company said: "Separate proposals would prohibit certain provisions in our
merchant contracts and permit merchants to impose surcharges in all EU
countries. We believe these proposals would not be beneficial to competition
and are anti-consumer. In those European countries where surcharging is already
permitted, most merchants have chosen not to add an extra fee at the point of
sale."
TCG's Coufal thinks the consequences of the regulations
could be so problematic for some banks that they may exit certain markets. Even
if they don't go that far, he said, they may have less money to fund their
commercial card strategies, such as corporate client rebates. "I've been
assured the consumer and commercial P&Ls are separate within a card organization,
so theoretically the commercial side shouldn't be affected," said Coufal.
"But indirectly they may stop being so generous."