Christian Verschueren is director-general of EuroCommerce. He spoke to EurActiv Czech Republic.
Last summer the European Commission proposed Directive on Payment Services (PSD). What effects do you expect from this proposal on single market?
First of all, it is a package of legislation – PSD, interchange fees regulation and legislation on basic bank accounts - which was proposed last spring. It is not only about new payment methods, it is also to make sure that the market is open to more competition, is transparent and benefits consumers. It is not only about the retailers as a lot of people think.
The legislation is in the European parliament now. What results do you expect?
We hope this legislation will be approved soon. We really would like to see at least an opinion of the Parliament before the European elections. This is an ambitious proposal but if we get a positive opinion by MEPs it would be a good step. Then we need to have the countries, it means the Council, approving it. That would take probably another six or nine months. The Greek presidency is not doing too much on it right now, so I expect it will start under the Italian presidency and hopefully conclude when Luxembourg assumes the presidency.
You hope for a positive outcome but you criticized the draft opinion of the ECON Committee.
It is true that the report was initially destroying the good work of the European Commission on this legislation. The proposal was a very good balance - it had good cross-border elements, plus it included a transitional period. But cards companies wanted to continue with the status quo. It is simple, the longer we wait the longer we preserve the status quo. The debate has been going on for 20 years.
This said we believe that the proposed caps of 0,2 and 0,3 percent are still too high, certainly for debit cards. We also did not agree with the Rapporteur’s proposed model for calculating the cap which was based on a weighted average. It should be on the basis of the best practice in each country. Look at the Netherlands, Belgium, Denmark; those countries have very well- functioning payment systems
We are talking about the most controversial and highly discussed proposal – the interchange fees regulation. Do we need it?
The interchange fees are decided between banks and card companies in Europe. Retailers have to pay about €14 billion a year of which about 10 billion is the MIF [Multilateral Interchange Fee] over which they have no negotiating power. They are locked into this system. This is something that needs to be broken up.
In the Netherlands and Belgium you pay only 5 or 6 eurocents. In the Czech Republic, the MIFs are close to about 1,2 % for credit cards. We do not see any justification for this sort of very high fees. The reasons why we need this legislation are simple. Competition policies have actually not been able to regulate this market in an efficient way. This has been confirmed by General court of the European Court of Justice in the European Commission’s case against MasterCard.
The problem is that merchants have to accept all the cards of one brand. If people pay with e.g. Visa gold, the MIFs are much higher. This is all controlled by the banks again and in the end the one who pays is the consumer. The end result is higher prices for consumers – both those who pay by card and even those who pay cash. The system is perverse and it needs to be changed.
You said that there is no reason for the interchange fee to be different from country to country. Banking card associations and the banking sector are arguing that it reflects the development of the market - when you have less transactions then that turns into higher fees. Do you agree with this?
Well, we don't. We understand that you need to develop the market, but what we on the other hand argue for is the lower the interchange fees, the more you will get card acceptance by merchants. You have a lot of small merchants now who cannot accept cards because the cost of them is too high. International retailers and large local chains are forced to accept the high fees, because the ability to pay by card is important for consumers.
The vision is to have much more universal use of payments by card or mobile, simply said a digital way of payment. There is going to be a move away from cash. If you look at North European countries, you will see they are moving away from cash for a number of very clear reasons: consumer demand and shopping habits, security in stores and the growth of internet payments. Everything is moving towards digital payments. But in order for that to happen, particularly for the small payments, it is very important that the cost of the transaction remains very low.
You were talking about the Northern countries, can you give us an example?
The Dutch have transaction costs which are just a fixed fee of few eurocents. Once you have lowered the price, there will be universal card use. We believe electronic payments should be more universally available for the masses rather then something very expensive for the elite. In fact, the interchange fee costs are paid by everyone.
And finally, lower card fees will be translated into prices again. The European Commission estimates the savings will be in the range of €6 billion, which will be passed onto consumers in the form of increased purchasing power.
How would you explain then the difference in interchange fees in different countries? Why does Sweden have lower fees than the Czech Republic? Why can you buy one coffee with your card in Sweden at the airport while in the Czech Republic you have a minimum price for being able to use your card?
Well, you need to ask the banks. In the Nordic countries they have lowered the fee and the cost of transaction is acceptable. As a result the card acceptance is much bigger. Keeping the interchange fees as high as in the Czech Republic, Poland or Portugal is really intolerable for the merchants, particularly for small merchants to accept cards.
Does EuroCommerce have any analysis or any impact assessment of the situation of how the market would look if there were caps on interchange fees?
The Commission has done an assessment, but I can only say: when you look at competition in today's retail market merchants simply cannot increase prices for consumers because it leads to a loss of business, loss of market share to others. When you look at who is doing well it is those merchants who offer discounts.
I would say it is in the retailer's DNA to pass on savings. They need to be competitive. Retailers are very good at squeezing down costs and creating efficiencies in the supply chain and they will do so in payments.
Some US studies show that lowering the fees gets translated into price reduction. But it is very hard to prove it mathematically. There are so many things that can change the price of goods – the weather conditions, trade barriers and other tariffs.
What is your proposal?
We want to have some of the cost of cards which offer high rewards – air miles etc - passed on the person who actually owns the card. The consumer organisations have accepted this concept. We are willing to pay for our share of the so-called ‘merchant service charge’. Retailers also pay for their own processing costs, but the consumer has a credit, he benefits from it. If you have a credit facility you can make a purchase so you should pay for it. If a consumer wants to have a gold card with additional rewards and guarantees he should pay few euros more for having that card. And it is the same with corporate card.
If you do this, the system becomes more transparent and you get more choices and then more competition.
If you look at the debate about MIF's regulation in the Czech Republic, one may get surprised by the fact that Czech consumers diverge from the view of their European counterparts in BEUC. At the same time, Czech traders and merchant are rather lukewarm towards the Commission proposal while you are strongly behind it. Do you have any explanation for such a divergence?
I suspect there is probably a bit of anti-EU sentiment playing a role in the Czech Republic. For example, British associations are in favour of the Commission's proposal despite the fact that some MEPs from the Conservative party are saying we do not want any legislation.
They say everything that is coming from Brussels is bad even if it is good for your own consumers or your trading environment. And the situation is the same in the Czech Republic. People do not even look at the substance; they just say we do not want any EU regulation. I am disappointed that the merchants in this country do not see the benefits. That means they want to continue with status quo in current system.
If you want to be on the side of merchants, you cannot be anything else than supportive of this regulation.