A senior MasterCard executive warned that Thursday's
approval by the European Parliament to include commercial cards in a cap on
interchange fees could lead to as big a shake-up of travel management economics
as the scrapping of agency airline commissions in the 1990s. Independent
consultants told BTN that should the
cap become law, it profoundly would affect corporate payments, including higher
annual fees and/or less generous rebates for payment systems' larger clients.
Members of the European Parliament were not swayed by
frantic late lobbying by "four-party" card schemes, which include
MasterCard and Visa, and their issuing bank partners, to exempt commercial
cards from a regulation capping fees at 0.3 percent for credit cards and 0.2
percent for debit cards. The European Commission last year recommended an
exemption when drawing up the draft regulation, but the Parliament's Economic
and Monetary Committee (ECON) unexpectedly removed the exemption in a
February revision. Despite a European Commission representative again urging
commercial card exemption during the preceding debate on Wednesday, MEPs on
Thursday voted to accept ECON's revised draft.
The Council of Ministers, representing individual European
Union member states, must approve the regulation in tandem with Parliament
before it becomes law. Although it has no formal powers of approval, the
Commission will continue to offer its view during a process known as a
trialogue. Both MasterCard and AirPlus International said a final decision
could take another year or more.
The composition, and perhaps attitude, of the European
Parliament will change following elections in May, and current European
Commissioners also are likely to be replaced by the end of 2014.
For now, MasterCard will focus its lobbying on the Council
of Ministers. "We are going to step up our outreach to potential
decision-makers within the member states and explain how commercial cards are
very different from consumer cards," said a MasterCard spokesman.
MasterCard and AirPlus last week each warned BTN that a cap
would stifle innovation and push up issuers' fees to corporate clients.
Although not directly related to the European Parliament vote, AirPlus on
Thursday said that from May 1 it will push up annual fees to €39 from €15 for the
100,000 private cards it provides corporate clients' employees. A spokesman
said the increase is in response to an agreement reached between Visa and the
European Commission this year to cap its interchange fees at the same level as
the regulation proposal voted for on Thursday.
MasterCard and AirPlus also are unhappy about the regulation
creating—in their opinion—an unlevel playing field between them and
"three-party" schemes such as American Express. They believe
three-party schemes would avoid the cap because their structure does not
include an interchange fee between a cardholder's issuing bank and the
merchant's acquiring bank. Instead, Amex usually charges a direct fee to the
merchant. "We will continue to make the point that the European Commission
must make an impact assessment and one of the issues for consideration should
be regulating merchant rates," said MasterCard head of commercial products
for Europe Andrew Buckley. Amex declined to comment on Thursday's vote.
Speaking about the potential ramifications of the
regulation, Buckley warned: "This is a similar shake-up to the ending of
airline commissions. It has the potential to be that big. The travel industry
needs to start thinking about it."
Jim Coufal, director of payment systems and expense
management for TCG Consulting, believes three-party schemes would be affected
by the proposed regulation even if not legally covered. "If the
three-party model were not capped, it would make that product more expensive,
so merchants would ask, ‘Why should I pay more for this card?' " he said.
"So they would have to reduce their fees anyway."
He added that Visa and MasterCard, in spite of enjoying much
wider acceptance than three-party schemes, are far from universally accepted,
especially in Eastern Europe, where interchange fees are much higher than in
Western Europe. "It should help merchants like boutique hotels in these
markets to start accepting cards," Coufal said.
He also believes issuers would drop their fee waiver for
larger corporate clients. "They may have to unbundle like the airlines and
start charging for support services such as management information,"
Coufal said. He would also expect card issuers to scale down significantly
their investment in product innovation.
Coufal said another consequence may be issuers curtailing
the rebates they pay (also known as revenue-sharing). PayTech Commercial
partner and managing director Vincent Eavis shares that view. "The
regulation largely would remove the potential for cash back either in the form
of points for small businesses or rebates for large ones," Eavis said.
Eavis believes the regulation, if it comes to fruition,
would lead to a major re-evaluation by large corporate clients of their payment
processes. "It would force the answers to some questions which either have
been avoided or just not thought about hard enough," he said. "Such
questions include: How does payment by card stack up versus payment by methods
such as check, wire and [Automated Clearing House]? What is the value of capturing
a transaction on a card? Under what circumstances would we be prepared to pay
for a card transaction? What if rebates were removed? If a client's case for
using cards only rests on rebates, the changes would not bode so well. However,
our data and research show that cards deliver much greater value in terms of
process automation, compliance, reduced audit and vendor discounts."