The European Union’s interchange fee regulation—which,
starting in December, caps at 0.3 percent the interchange fee MasterCard and
Visa issuers can charge on credit cards—will cause a scaleback on individual-pay
corporate card offerings in Europe, at least according to Visa Europe director of European affairs Marc Temmerman. It'll also force corporate clients to seek
three-party scheme options, in which the issuing and acquiring bank are the
same, he said.
“Given that a very substantial part of corporate cards are
based on individual billing, mostly combined with joint and several liability
between cardholder and employer, many issuers will re-assess the business case
for offering such cards and the additional services (e.g., reporting) they require,” Temmerman concluded in an October blog
post published by the European Payments Council. “Indirectly this would
impact their corporate customers who may have no other choice but to seek three
party scheme-based alternatives.”
The final interchange fee regulation version specifically
excludes corporate cards and three-party schemes, but a last-minute wording change
last year worried and confused issuers and card networks. The regulation
initially defined a corporate card as one to be used solely for business
expenses, whether charged directly or indirectly to the company or
self-employed person who issued the card. However, regulators worried that
issuers would sidestep the cap by distributing corporate cards to consumers or
allow cards to be used for nonbusiness expenses. To prevent this, regulators
removed the words “or indirectly,” creating ambiguity on whether the cap
applies to individually billed corporate cards.
“Whether cards are individually billed to the cardholder
(who will then be reimbursed by his employer) or directly billed to the account
of the business itself does not alter the nature of a genuine commercial card,”
argued Temmerman.
MasterCard group head of global T&E products and
solutions Richard Crum disagreed that the regulation would push clients toward
three-party schemes. “There are so many reasons why that just won’t make sense.
One of the things that matters to a company is the ability to use a corporate
card everywhere, and that’s the Achilles' heel of most closed-loop or third-party
networks: limited acceptance.”
Crum also didn’t think the regulators' last-minute amendment
was necessary to prevent bad behavior. “Issuers take very seriously compliance
with all types of regulations.”
Regulators were motivated to make the change, according to
Crum, in part by the small business sector. Regulators wanted to prevent people
from claiming to be a small business “and to make sure that the accounts are
related to the business undertaking, which a corporate card always is," he
said. "You can’t get a corporate card by being an individual. You’re
always part of a corporate entity of some sort.“
Open To
Interpretation
The change has left networks and issuers to interpret the
regulation how they see fit until the European Union provides clarification,
which may not happen until mid-January.
MasterCard is working “very closely” with all its European
issuers, Crum said. “It’s important that they build their interpretation
because it’s their product. Every one of them has implemented the products that
they take to the market differently, and they have to make sure they maintain
compliance with all regulations, not just this one.”
Crum maintained that “a corporate card is a corporate card”
and that it remained outside the regulation’s scope.
According to U.S. Bank head of commercial card product and
marketing for large and public sector Mary Miklethun, “There are many different
interpretations in the market, and it’s also subject to interpretation by each
local regulator. The way we interpret the rule at this point is that there is
still an exclusion for commercial cards, and we believe that because our
corporate cards in Europe are all corporate liability, they meet the definition
of a commercial card and won’t be subject to these interchange caps under the
existing rule.”
BMO vice president of North American corporate card products
Steve Pedersen also said the EU interchange fees would not impact the bank “in
the foreseeable future.” He added: “Our Diners Club customers on the multinational
side won’t feel any immediate impact from the interchange fee changes. Our
Diners Club cards are through MasterCard, which gives us an international
interchange rate when the cards are used out of jurisdiction.”
Additionally, even if interchange rates were to weaken,
Pedersen said BMO’s exposure would be limited. For example, only 14 percent of its
Canadian Diners Club program is nondomestic, and 70 percent of those
transactions occur in the United States. “The rest of our Diners Club
transactions, a very small fraction of our business, are completed outside of
the North American jurisdiction.”
On the contrary, AirPlus International has interpreted the
regulation to exclude individual-pay cards from the exemption and announced it
would begin charging a transaction
fee in December that will apply to 83 percent of its German individual-pay
corporate card clients.
Amex declined to comment, but during an earnings call in
October, CFO Jeff Campbell said the interchange fee caps for credit and debit
cards would pressure Amex to lower
its rates. Visa did not respond to requests for comment.
Issuers Stand Firm
While corporate cards typically are excluded from such
regulatory changes, Pedersen said there is a risk that will change, causing
interchange fees to decline.
“This will eventually impact rebates on corporate programs,”
he said. “As the retail community is trending toward payment options like
Google Wallet with lower rates, other jurisdictions may start to really look at
what has happened in Europe and follow suit, which could have a potentially
negative impact on us.”
In April, JPMorgan Chase confirmed to BTN it would exit
the international commercial card market by Dec. 13 to concentrate on “areas
where we can best meet clients’ needs.”
But MasterCard’s Crum said one cannot draw a direct
correlation between the regulation and JPMorgan Chase’s exit. He also did not
foresee other issuers pulling back or limiting their activity.
Likewise, Miklethun said U.S. Bank has not been discouraged
from issuing commercial cards in Europe, nor did she anticipate customers flocking
to three-party schemes.