New EU Regs Boost U.S. Cards

Major U.S. corporate card issuers J.P. Morgan and Bank of America Merrill Lynch are scaling up their European presence as the continent harmonizes its cross-border payment regulations. With two more important steps in the harmonization process completed last week, both banks said the improvements would make it easier for them and their clients to operate pan-European corporate card programs.

"The new legislation really does create opportunities in the European market," said Alan Koenigsberg, international head of commercial card programs for J.P. Morgan.

On Nov. 1, the majority of the 27 member states of the European Union, plus such European Economic Area countries as Switzerland, implemented the Payment Services Directive, intended to create unified cross-border legislation for non-cash payments and establish minimum service standards across Europe.

The following day, the Single Euro Payments Area, a self-regulatory initiative created by Europe's banking sector, made cross-border direct debit payments possible for the first time. SEPA is intended to eliminate all distinctions between cross-border and domestic euro payments. European banks are scheduled to make all payment cards SEPA-compliant by the end of 2010.

Koenigsberg said the regulatory improvements would create significant process efficiencies for pan-European card programs and improve reporting.

"Under the old regime, if you had employees in 15 euro-zone countries, then each one had to set up separate payment instructions to settle their card statements," he said. "Now we are harmonizing to one area rather than 15 areas, all with one currency. It makes implementation and management of a pan-regional card program easier and provides more transparency. It also eases issuers' barriers to entry."

J.P. Morgan gradually has increased its presence in the European corporate market in the past three years but now is accelerating its activities. This year, it launched the Executive Card, which carries such extra benefits for frequent corporate travelers as lounge access, and rolled out prepaid cash cards in euro and sterling currencies. It also has started publishing card statements in French, German, Italian, Spanish and English.

In the past few weeks, J.P. Morgan has launched a Swiss franc corporate T&E card, and in the first quarter of 2010 it will roll out an international U.S. dollar card with chip and PIN security features, mainly for use in Eastern Europe, the Middle East and Africa. It expects the card to prove popular with oil and gas companies and others that heavily use the dollar. Also in the first quarter, J.P. Morgan intends to launch its Carbon Emissions Reduction Fund, allowing cardholders to offset emissions as they spend. J.P. Morgan is partnering with the emissions offsetting company Climate Care, which it owns.

Meanwhile, Bank of America is looking to establish a significant presence in the European corporate card market for the first time. At present, it offers a limited European card program to U.S.-based multinational clients, but global head of commercial card solutions Kevin Phalen told BTN that in early 2010 it will launch a full range of products, including T&E, lodge and purchasing cards. The products will be available to European-based companies as well as U.S. multinationals and will be available in either the euro or sterling.

Bank of America has hired European card veteran Alan Hawkins, who will leave his post as multinational program vice president for MasterCard Worldwide's Global Commercial Products division at the end of this month to become its head of international card products.

Phalen said Bank of America is launching a European strategy primarily because of the opportunity to serve Europe-based multinational clients it inherited through its acquisition in September 2008 of Merrill Lynch. The bank also is experiencing greater demand from corporate clients for global card programs, but while Bank of America is one of the largest players in the United States, it barely figures in the international market.

In addition, Phalen said regulatory advances are making this an auspicious time to enter Europe. "It has created the ability for us to market with consistency across Europe, although we still have to meet domestic payment directives," he said. "SEPA is meant to increase and ease cross-border payments, and I think it will, which is why you are seeing expansion in the marketplace by us and other U.S. financial institutions. MasterCard and Visa have created a way in which organizations like us can expand our footprint."

Ulf Geismar, a director with financial and payment services consultancy Edgar, Dunn & Co., supported Phalen's statement that card issuers and their clients still will have to contend with regulations at a national level. "Most national legislators have not adopted the Payment Services Directive 100 percent," he said.

As an example, Geismar cited airline surcharges on payments by credit card. The new directive allows surcharges of this type in all countries, but Geismar said some countries have excluded permission to do this from their national implementation of the directive. Other remaining market-by-market variations include reporting on value-added tax. "The new regulations remove some of the differences, but not all of them," he said.